In its filings with Bursa Malaysia, Digi said its wholly owned subsidiary Digi Telecommunications Sdn Bhd (DTSB) had yesterday entered into a settlement deal with Telenor IT Asia Sdn Bhd (TITA) and Telenor Global Shared Services AS (GSS) to exit the MoU and service order for IT infrastructure services signed between the three parties on Nov 7, 2014, and Nov 25, 2016, respectively.
KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Digi.Com with a 2% higher discounted cashflow based target price of RM5.10, post-earnings revision.
It said on Wednesday that structurally, it sees Digi benefiting as the market moves closer to network parity.
“However, we see subdued near-term earnings due to prepaid SIM card consolidation and rising depreciation,” it said.
Digi’s FY18F EV/OpFCF (enterprise value/operating free cashflow) of 17.9 times is in line with the Asean average, with decent FY18-20F yields of 4%-4.5% per annum, in our view. Key upside/downside risks are better-than-expected postpaid traction/keener competition.
CIMB Research said the 4Q17 EBITDA rose 0.7% on-quarter (-1.2% on-year) as revenue growth was largely offset by lower margin.
Core EPS was flat on-quarter (-8.8% on-year), dragged by higher depreciation.
“FY17 results were in line, as EBITDA/core EPS formed 101%/99% of our forecasts (Bloomberg consensus: 101%/98%). Final DPS was 4.6 sen (payout: 99%, FY17: 18.8 sen), in line with our expectations,” it said.
For FY18, Digi is guiding for flat to low single-digit service revenue decline and flat EBITDA, with capex/sales at 10%-12% (c.RM600mil to RM700mil).
It pointed out that Digi’s service revenue rose for the second consecutive quarter in 4Q17, up 2.5% on-quarter (-2.7% on-year).
Prepaid revenue grew for the first time since 4Q14, up 1.5% on-quarter (-10.6% on-year), on better monetisation and seasonally-stronger usage.
Prepaid subs fell further on-quarter, albeit more moderately (-190,000), due to SIM card consolidation, but average revenue per user (ARPU) rose 6.3% on-quarter to RM34.
Postpaid revenue growth stayed healthy (+4.1% on-quarter, +13.5% on-year) on healthy net adds (+85k) and higher ARPU (+1.3% on-quarter) at RM78.
The 4Q17’s EBITDA margin eased 1.8% pts on-quarter (steady on-year) to 44.5%, mainly due to subsidies on higher device bundled sales, while other costs were well-contained.
Digi's FY17 EBITDA margin of 45.5% was up 0.7% pts on-year and in line with our forecast of 45.4%. The improvement was partly due to one-time regulatory cost savings but Digi also managed to cut staff and sales and marketing costs during the year.
These helped to buffer against higher operations and maintenance cost (due to network expansion). 4.5G coverage expanded; balance sheet remains healthy Digi’s 4G coverage in 4Q17 remained at 87% on-quarter (4Q16: 85%), while its 4.5G coverage was extended by 6% pts on-quarter to 55%, supported by 8,000km of fibre optic cables (3Q17: 8,000km).
FY17 capex was lower by 4.1% on-year at RM748m (capex/sales: 12.6%). The balance sheet stayed healthy with 0.7x net debt/EBITDA at end-FY17 (end-FY16: 0.6 times).
“Incorporating the FY17 results, our FY18-19F core net profit is raised by 2.4-2.7%. After a 5.0% on-year fall in FY17, we expect service revenue to grow slightly by 1.1% in FY18F (more optimistic than Digi’s guidance) and a further 2.5%/1.8% in FY19F/20F, led by postpaid expansion and better data monetisation on steadier competition.
“We forecast core EPS to rise a modest 2.3% in FY18F due to still rising depreciation, before growing 6.7%/5.5% in FY19F/20F on higher revenue,” it said.
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