With network improvements, the research house said Digi aims to drive its postpaid revenue by offering easy entry plans to drive pre-to-postpaid conversions.
KUALA LUMPUR: Despite Digi's proven track record in cost management, the telco will have limited scope to further improve its cost efficiency level, says PublicInvest Research.
The research house noted that the mobile segment has undergone intense competition in recent years with average revenue per user (ARPU) not likely to improve due to heightened regulatory pressure on the sector.
"In an environment of falling or stagnant revenue, cost optimization will be the key for players to strive in this challenging industry," it said.
The research house maintained its FY18-20F earnings forecasts on the counter with a neutral call and unchanged target price of RM4.80.
Digi yesterday reported a 2.2% increase in 3QFY18 net profit to RM392.5mil, mainly due to the impact of MFRS 15, which came in line with PublicInvest's and consensus expectations.
"Despite posting flattish 3QFY18 revenue (pre-MFRS), DiGi was able to chalk higher operating profit (+1.9% YoY) largely due to lower depreciation charges," said PublicInvest.
Stripping out the impact of the a network transition cost of RM40mil incurred in Q2FY18, operating profit in Q3FY18 declined about 5% quarter-on-quarter on the back of higher depreciation cost and lower revenue.
"Operating expense as a percentage of service revenue increased marginally from 32.2% in 2QFY18 to 33.1% in 3QFY18, mainly due to higher cost related to on-going network upgrades and expansion, which resulted in higher operating & maintenance cost.
"Also, DiGi’s contribution to the universal service obligation has increased from 6.2% to 6.8% of service revenue."
Service revenue was flat as the decline in prepaid revenue was offset by higher postpaid revenue.
Device revenue and other dropped 6.9% quarter-on-quarter, resuting in a marginal decline in group's revenue.
Subscriber based increased 1.2% sequentially, with both prepaid and postpaid delivering higher customer base.
ARPU for the prepaid segment decline by RM1 or 3.1% while postpaid ARPU remained at RM76.
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