4QFY21 CNP of RM253m brought FY21 CNP to RM1.1b, within our and consensus expectations. DIGI continued gaining postpaid subs in its entry-level and family packages, but keeps losing prepaid subs to the smaller MNOs/MVNOs, likely on price competition. Looking ahead, management looks to focus on its postpaid, fiber, and B2B segments in 2022. We lowered FY22E CNP mainly to account for the one-off prosperity tax, and introduce FY23E CNP, implying a 9% YoY increase. We maintain our MARKET PERFORM call with TP of RM3.80.

FY21 within estimates. 4QFY21 core PATAMI of RM253m (-14% QoQ, -7% YoY) brought FY21 core PATAMI to RM1.134b, making up 97% of our FY21 forecast, within our expectations. The results also came within consensus' expectations at 98%. 4QFY21 DPS of 3.9 sen brought FY21 DPS to 14.9 sen, as expected.

YoY, revenue rose 3% mainly on higher device sales (+40%), as service revenue fell 1.6% weighed by both postpaid (-1.5%) and prepaid (- 2.7%). Despite that, core PATAMI fell 3.5% on higher device costs (+38%), D&A expense (+3.4%) and net finance costs (17.5%). Postpaid subs rose 8.3% to 3.3m on entry-level and family packages. Digi's prepaid subs continued to fall against a growing number of prepaid subs in Malaysia, as the other MNOs/MVNOs continued to steal prepaid market share.

QoQ, revenue remained stagnant as the softer service revenue (-1.6%) was cushioned by higher device revenue (+12%). However, core PATAMI fell 14% on higher device costs (+21%) and opex (+4%). Postpaid subs rose and ARPU fell on entry-level packages. Prepaid subs and ARPU continued their downtrend likely due to competition.

Met 2021 guidance, introduce 2022 guidance. Digi met its FY21 guidance on revenue, EBITDA and capex. For FY22, Digi is guiding growth in service revenue, driven by postpaid, B2B and fibre. Guided FY22 EBITDA should be around FY21 level of c.RM3b (not including merger) with capex intensity of ~13% (FY21: 12.8%).

Outlook. Looking ahead, we believe postpaid subs will likely continue rising as DIGI focuses on its bundled products and entry-level postpaid packages, which may erode ARPU. That said, given that majority of postpaid subs are on plans near the RM60 price point, we expect ARPU to fall another RM2 before stabilizing. Although the total pool of prepaid subscribers has been rising QoQ, DIGI and Maxis seem to continue losing out prepaid market share to the smaller MNOs/MVNOs and Celcom.

Post results, after fine tuning some assumptions and to account for the one-off prosperity tax, we lower FY22E CNP by 14% and thus lower our FY22E DPS from 15.2 sen to 13.2 sen. We introduce FY23E CNP of RM1.3b, representing a 9% YoY increase, mainly driven by postpaid and fibre subs growth. On a pro-forma basis, we estimate Celcom Digi Berhad to achieve FY22E/FY23E CNP of RM1.9b/RM2.5b.

Maintain MARKET PERFORM with TP of RM3.80 despite the FY22E earnings revision, as most of the revision stemmed from the revision of the effective tax rate. Our TP is derived on 9.5x EV/EBITDA on our FY22E Celcom Digi EBITDA.

Source: Kenanga Research - 31 Jan 2022