KEY INVESTMENT HIGHLIGHTS

• Weaker 4Q19 normalised earnings of RM338.2m, impacted by higher depreciation and amortization and finance cost

• Full year FY19 financial performance came in -8.1%yoy lower, within ours and consensus expectation

• Growth in postpaid revenue overwhelms by the contraction in prepaid revenue

• Higher capex allocation could be necessary to maintain competitive edge

• Maintain NEUTRAL with a revised TP of RM4.30

Resilient revenue. Digi’s 4Q19 normalised earnings amounted to RM338.2m which represent a contraction of -10.6%yoy. 4Q19 normalised earnings was primarily impacted by a combination of higher depreciation and amortization (+48.8%yoy) and higher finance cost (+82.4%yoy). Meanwhile, 4Q19 revenue remained resilient at RM1,678.1m (+0.2%yoy), mainly supported by higher data revenue (+6.1%yoy)

Within expectations. Cumulatively, FY19 normalised earnings came in lower at RM1,416.2m (-8.1%yoy), tracking the -3.5%yoy contraction in revenue to RM6,297.4m. All in, Digi’s FY19 financial performance came in within ours and consensus expectations, making up 95.7% and 95.6% of full year FY19 earnings respectively.

Growth in postpaid revenue remains solid. 4Q19 postpaid revenue grew by +9.6%yoy to RM731m. This was mainly due to healthy customers’ demand from Digi’s Phone Freedom 365 and Digi postpaid family plans. As a result, the postpaid subscriber base has surpass the 3.0m mark (+8.1%yoy). Meanwhile, ARPU remained resilient at RM71.

...while prepaid revenue contracted at a relatively faster pace. On the contrary, 4Q19 prepaid revenue declined by -9.7%yoy to RM736m. This was mainly attributable to reduction in voice revenue as there is less reliance in traditional voice. The subscriber base dwindled by -1.8%yoy to 8,249 k, while the ARPU is maintain at RM29 per month.

Capital expenditure (capex). Digi’s 4Q19 investment amounted to RM205m, leading to FY19 capex of RM753m. The investments were prioritised to optimised the 4G network quality with enhanced capacity through fibre network expansion to 9,610km and re-farming of spectrum portfolio.

Dividend. Digi announced 4Q19 dividend of 4.4sen per share. This led to cumulative FY19 dividend of 18.20sen per share, a decline of - 7.1%yoy from 19.6sen per share announced in FY18. Nonetheless, this is still within our expectation, which constitutes 96.3% of our full year FY19 dividend estimates of 19.6sen.

Source: MIDF Research - 23 Jan 2020