INVESTMENT HIGHLIGHTS

• Improvement in postpaid and device revenue led to +8.3%yoy improvement in 2Q18 normalised earnings
• Double digit growth in postpaid revenue driven by +15.8%yoy increase in postpaid subscriber
• Higher 2Q18 dividend payment in-line with stronger earnings
• Upgrade to BUY (previously Neutral) with an unchanged target price of RM4.70sen per share

Supported by revenue growth in postpaid. Digi.com Bhd (Digi) reported 2Q18 normalised earnings of RM389.0m (+8.3%yoy). The improvement in earnings was mainly led by the growth in postpaid segment and higher devices revenue. This led to 1H18 normalised earnings of RM772.4m, an increase of +5.2%yoy. All in, Digi’s 1H18 financial performance came in within ours and consensus expectations, accounting for 55.0% and 51.5% of FY18 full year earnings estimates respectively. 

Steady growth in the postpaid segment. 2Q18 postpaid revenue climbed by +15.5%yoy to RM619m. The improvement in postpaid takeup rate was supported by increased plan upgrades via subscriptions for high value plans enabled with borderless roaming proposition. In addition, there are easy entry plans and affordable 4G device bundles supported by stronger base management, data insights and digitisation capabilities which continued to drive prepaid to postpaid conversions. ARPU remained resilient at RM76 per month, supported by continued prepaid to postpaid conversions. This led to +15.8%yoy expansions in postpaid customer base to 2.7m subscribers.

Resilient prepaid revenue. The prepaid revenue declined at slower pace of -5.7%yoy to RM865m from RM917m as at 2Q17. The lower revenue was attributable to -7.5%yoy decreased in subscriber base to 9.0. There are also continuous conversions from prepaid to postpaid. Meanwhile, ARPU remains stable at RM32 per month.

Dividend. Digi announced 2Q18 dividend of 4.6sen per share. This is 0.3sen higher as compared to 4.6sen per share announced in 2Q17. Cumulatively, 1H18 dividend amounted to 9.8sen per share, up from 9.3sen per share for 1H17.

Source: MIDF Research - 16 Jul 2018