INVESTMENT HIGHLIGHTS

• 1Q19 normalised earnings came in at RM337.9m, on track to meet full year FY19 earnings estimates

• Higher proportion of internet revenue of 61.9% as the group continues to focus on internet centric acquisition

• 1Q19 capex to service revenue ratio maintained at 12.1% with focus on capacity upgrades and network expansion

• Maintain BUY with a revised target price of RM5.06

Taking a breather. Digi’s 1Q19 normalised earnings lessened to RM337.9M. This was mainly attributable to weaker prepaid service revenue as well as seasonally lower device volume. In addition, 1Q19 earnings were also affected by the change in regulated interconnect rate revision. All in, the 1Q19 financial performance came in within our and consensus expectations, accounting for 21.5% and 21.7% of full year FY19 earnings estimates respectively.

Steady growth in postpaid subscriber. 1Q19 postpaid revenue improved by +13.5%yoy to RM671m. This was premised on growth from the internet postpaid subscribers as the group focused on acquisition and retention strategies. Meanwhile, the group managed to maintain postpaid ARPU above the RM70 levels via plan upgrades from existing base.

Internet prepaid subscribers gained traction. The prepaid service revenue decline by -13.7%yoy to RM769m. This was mainly attributable to lower revenue from interconnect rate revision and traditional voice as non-internet subscribers dwindled to below two million (-31.5%yoy). However, the internet prepaid subscribers expanded to 6,457k (+1.6%yoy). This supported the overall growth in internet revenue to RM862m (+13.3%yoy).

Dividend. Digi announced 1Q19 dividend of 4.3sen per share. This represents a payout ratio of 97.9%. This accounts for 21.4% of full year FY19 forecast of 20.1sen per share.

Careful capital spending. 1Q19 capital expenditure (capex) came in at RM168m, maintaining its ratio of 12.1% of service revenue. This was mainly for: (i) capacity upgrades and fibre network expansion, (ii) deployment of Network Function Virtualisation (NFV), and (iii) expansion of LTE-A network coverage to 67% of population.

Source: MIDF Research - 23 Apr 2019