PETALING JAYA: Digi.com Bhd's first quarter results were largely within analysts expectations, with research houses reckoning that data would continue to be the growth engine of the company.
On Tuesday, DiGi announced an improved net profit of RM328.6mil, or 4.23 sen earnings per share, on a higher revenue of RM1.64bil for the first quarter. DiGi has also declared its first interim dividend of 3.8 sen, or RM295mil, translating into a 90% payout ratio.
BIMB Securities Research said DiGi's net earnings were within expectations and that it was maintaining its forecast.
“We are maintaining our FY13 and FY14 net earnings forecast at RM1.4bil and RM1.48bil, respectively. Opera-ting cash-flow has improved from RM470mil to RM529mil. DiGi has declared its first interim dividend of 3.8 sen and we are maintaining our FY13 dividend forecast of 18 sen, translating into a potential yield of 3.9%,” BIMB analyst Thong Pak Leng said.
HwangDBS Vickers Research and MIDF Research said DiGi's results were within their expectations but below market consensus expectations. “We think consensus is too bullish on DiGi's earnings and dividend prospects, given DiGi's limited retained earnings and normalised tax structure.
“Nevertheless, it has the strongest earnings prospects in our sector coverage due to its value offerings and coverage upside. The stock could also re-rate if it transitions to a business trust,” HwangDBS said.
It expects mobile Internet and broadband revenues to fuel growth on the back of greater subscriber traction from DiGi's revamped Smart Plans, 3G coverage expansion and rising smartphone penetration.
HwangDBS said it understood that DiGi was exploring implementation of HSPA+ speeds on top of 4G long-term evolution (LTE), which is expected by the current quarter.
“This would place DiGi on par with larger incumbents in terms of speed, which would entice more subscribers due to the greater price differential when speeds are no longer a competitive factor,” it said.
MIDF Research has also maintained its FY13 and FY14 earnings forecasts for DiGi, as its results were within its expectations.
“In addition, we maintain our neutral' recommendation due to the capping of future dividends. Nevertheless, DiGi is exploring a business trust scheme, which may be an interesting proposition for investors, but it is still early days,” it said, adding that it expected dividend yields of 3.6% for FY13.
The research house said DiGi's 3.8 sen interim dividend was within its expectations and believed that the dividend trend going forward was between a 90% and 100% payout ratio. “This is due to the fact that dividends would be capped by its performance due to the near exhaustion of its retained earnings.”
PublicInvest Research considered DiGi's results to be slightly below expectations, as it expects DiGi's net profit to pick up in the second half after the completion of its network modernisation programme and less aggressive handset/device sales in subsequent quarters.
“Management believes it is still on track to meet its guided 5%-7% revenue growth and earnings before interest, tax, depreciation and amortisation margin of 46%. We expect DiGi to deliver stronger results from the second half, with lower depreciation expense and less handset/device subsidies.
“As DiGi's dividend payment is constrained by a lack of retained earnings, management is currently evaluating setting up a business trust,” it said.