RHB maintains Buy on Digi, TP at RM5.25

KUALA LUMPUR: RHB research maintained its buy call on Digi.Com Bhd with an unchanged target price of RM5.25 following the announcement of the telco’s 1Q19 results, which came in within expectations.

The research house said in a note that Digi’s core 1Q19 earnings fell by a marginal 0.1% quarter-on-quarter (q-o-q) and 2.3% year-on-year (y-o-y) to RM377mil, which came to 24% of RHB’s and consensus estimates.

The telco had attributed the slight dip in performance to seasonally weaker mobile service revenue and Ebitda, which was partially offset by lower taxation and cost efficiencies.

RHB added that there was a RM24mil delata on core earnings due to the implementation of MFRS 16 as higher Ebitda was more than offset by an increase in depreciation and financing cost.

Digi’s postpaid segment saw mobile service revenue falling 3% y-o-y on seasonality and higher handset amortisation.

“Excluding the latter (1Q19: MYR48m), postpaid revenue grew 13.5% YoY (+0.6% QoQ) on steady ARPU of MYR71,” said RHB.

Mobile internet (MI) revenue contribution widened to 62% in 1Q19 from 59% in 4Q18 and 52% in 1Q18.

“We continue to see Digi benefitting from the strong prepaid-to-postpaid conversion given
the attractive handset bundling offers and Phone Freedom 365 (PF365) device ownership plan, which has now been extended to port-in customers (subject to good credit standing),” said the research house.

In the prepaid segment, revenue fell 13.7% y-o-y from lower interconnect rates and a change in iits distribution/channel strategy.

Prepaid average revenue per user fell 3% q-o-q to a new low of RM29.

“We gather that Digi adjusted the channel incentives for reloads, which had previously favoured a smaller group of dealers with savings extended to a wider pool of business partners.

“Management expects the impact on prepaid revenue from the change to be temporary, with more sustainable growth expected over the longer-term,” said RHB.