1QFY22 PATAMI is in line with our/consensus expectation. However, top-line remained under pressure with decline in both Prepaid and Digital revenues offset by a moderate improvement in Postpaid. ARPU was still under pressure. On the flipside, margins remained stable. Management maintained its guidance of improvement in top-line for FY22 with EBITDA looking to be at FY21 level. Our FY22E earnings remained unchanged as well as the TP of RM3.80. Reiterate MARKET PERFORM.

In line. 1QFY22 core PATAMI of RM236m (-12% YoY, -7% QoQ) accounts for 23%/20% of our/market estimate. DPS of 2.9 sen declared is line with our expectation of 13.2 sen for FY22.

YoY, 1QFY22 revenue fell 2% to RM1.53b underpinned by Service revenue (-2% to RM1.31b). Decline in both Prepaid (-4%) and Digital (- 25%) revenues mitigated the moderate showing of Postpaid (+3% to RM633m). Postpaid subs saw positive improvement (+8% vs. Prepaid’s decline of 4%) via quality acquisitions, low churn rate and attractive smart bundles. Both Postpaid and Prepaid saw ARPU coming under pressure - shedding RM4/RM1 respectively to RM61/RM32. Blended ARPU shed RM1 to RM42. Core EBITDA margin remained stable at 49%. ETR of 37% (arising from the one-off Cukai Makmur) saw CNP shrinking by 12% to RM236m.

QoQ, revenue continued to remain under pressure (-4%) with Service revenue buckling slightly (-1%) mitigated by a flattish Postpaid revenue. EBITDA margin remained stable. Sequentially, all ARPUs remained under pressure. Subs fell (<-1%) but this was mitigated by Postpaid (+1%).

Moving forward, DIGI reiterates its guidance of growth in Service revenue with unchanged EBITDA of c.RM3b and capex-to-sales ratio of 13%. We maintain our view of DIGIs’ postpaid subs likely to continue rising as it focuses on bundled products and entry-level Postpaid packages, which may on the other hand, 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. With Prepaid subs continuing to decline, we reiterate our view of DIGI losing out prepaid market share to the smaller MNOs/MVNOs and Celcom.

Post results, no change in our FY22E/FY23E earnings estimates.

Maintain MARKET PERFORM with TP of RM3.80. Our TP is derived from 9.5x EV/EBITDA on our Celcom Digi’s FY22E EBITDA.

Risks to our call include: (i) the proposed merger failing to obtain the necessary approvals, (ii) better/worse-than-expected service revenue, (iii) weaker/stronger-than-expected OPEX, and (iv) weaker/stronger-than-expected competition.

Source: Kenanga Research - 5 May 2022