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Maintain NEUTRAL, with a higher DCF-derived TP of MYR3.72from MYR3.65, c.6% upside and c.4% yield. Results at 3Q and 9M were a miss notwithstanding a one-off tax penalty refund (c.MYR12m) with seasonally higher opex expected in 4Q22. Fixed broadband and enterprise growth is given, albeit with nominal contributions still. We trim FY22F core earnings but bump up FY24-25F by 4-6% post the results call. Our TP has factored in the 12.5% equity subscription in Digital Nasional Berhad (DNB) and a 6% ESG premium.
Below expectations. 3Q22 core PAT (including merger-related cost but stripping-out a one off tax penalty refund) grew 11.7% QoQ, the first in three quarters, as opex restraint and lower financing cost eclipsed the marginal service revenue decline. This brought 9MFY22 core earnings (-16% YoY) to 70% of our forecast (consensus: 69%). Core EBITDA held steady QoQ and 9MFY22 (+0.1% YoY). A third interim 3.4sen DPS (9MFY22: 9.1sen) puts payout at parity with earnings, reflecting DiGi.Com’s strong operating cashflows.
Prepaid hit by the expiration of the Jaringan Prihatin (JP) rebates. Overall service revenue eased 0.5% QoQ (-0.2% QoQ excluding digital revenue) as renewed pressure in the prepaid segment offset stronger postpaid revenue (+1.6% QoQ) and fiber broadband (FBB) revenue (+28.6% QoQ). After seeing an uptick in 2Q22, prepaid revenue slipped 2.3% QoQ (-6.7% YoY) as the expiration of the 12 month JP subsidies (MYR15/month) in September crimped ARPU (-6.7% QoQ and -7.7% YoY) which narrowed to MYR31. This marred the strong recovery in the migrant segment (return of foreign workers) and higher domestic prepaid subs as base management activities continue to yield positive results. Digi believes the pressure on prepaid ARPU is behind it with an improvement seen into 4Q22, helped by the positive reception to its “MYR40 Prepaid Next Unlimited” plan. Post the results call, we trim FY22F core earnings by 3.3% but raise FY23-24F core earnings by 4-6% after adjusting our ARPU and subs growth assumptions.
FBB and enterprise/B2B revenues making new highs. FBB revenue advanced 29% QoQ and surged over four fold YTD on good upselling and mobile bundling efforts with ARPU hitting a quarterly high of MYR130. Similarly, enterprise subs and revenue sustained its strong double-digit growth trajectories of 18.1% and 12.4%YoY.
Key risks are competition, weaker than expected earnings, and merger synergies as well as regulatory setbacks.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....