KUALA LUMPUR: Kenanga Research believes there is a strong likelihood that Digi.Com will be reinstated to the Securities Commission's syariah-compliance list by May this year.
It said the group has already achieved a conventional loan-to-total asset ratio of below 33% since 2QFY17 and down to 21% as at March 2, and submitted its FY17 audited accounts before the March 31 cut-off date.
The research house also said the group should easily meet the upcoming 700MHz band fee given that since 2QFY17 it has issued a sukuk bond programme of up to RM5bil, of which only RM900mil has been disbursed to date.
Kenanga Research noted that different accounting treatment by telco operators for device sales before the implementation of the MFRS 15 led to significant variation to the bottom line.
"Recall that Digi showed a 10% increase in 1QFY18 net profit vs Maxis’ decline of 1%-3%. Nevertheless, we note that Maxis’ recent results showed a retroactive adjustment to FY17 results while Digi only showed the impact in 1QFY18.
"Digi maintains its FY18F service revenue guidance of a flat-to-low single-digit decline vs. a 5% decrease in FY17."
The research house said Digi has yet to introduce new plan options and expects them to emerge soon to maintain its postpaid market share. It noted that Digi's 401,000 on year decline in prepaid subscribers to 9.2 million has almost been offset by a 382,000 increase in postpaid subscribers to 2.6 million.
"The stock currently trades at a fair FY18F EV/EBITDA of 13x near its 2-year average of 14x. Given the highly competitive landscape, we expect Digi’s subscriber growth and ARPUs to remain under pressure as both Maxis and Celcom are also aggressively improving 4G coverage and service quality."
Kenanga Research maintained its hold call on Digi with an unchanged forecasts and a fair value of RM4.50 a share, which implies an FY18F EV/EBITDA of 13x, the stock's two-year average.
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