PETALING JAYA: Even though there is a cut in earnings and adjusted dividends, Digi.com Bhd’s position as the top dividend-yielder remains unchanged. It is still a preferred stock of several broking houses.
“Digi is the least affected during these unprecedented times, and by new competitive forces, mainly due to its already low-based average revenue per users (ARPUs), said Kenanga Research.
The house has cut its financial year 2020/21 earnings by 10%/6% but potential dividend yields remained attractive at about 4%.
It maintains its “outperform’’ call for the stock with a revised discounted cash flow (DCF) target price of RM4.25 a stock from RM4.65.
Public Investment Bank has a similar call on the stock and a target price of RM4.75 a share. Public Invest said Digi provides the most attractive dividend yield among the telco companies under its coverage. For FY20, it is projecting a yield of 4% for Digi, compared to the sector average of 3%.
CGS-CIMB Research retains its “hold” and cuts Digi’s target price post-earnings, partly buffered by lower FY20-21 capex to RM4.15 a share.CGS-CIMB said the key upside/downside risk was better postpaid revenue share gains/stiffer competition.
The house has forecast FY20 core earnings per share (EPS) to dip 6.0% year-on-year (y-o-y) on lower service revenue, before growing 1.0%/2.8% y-o-y in FY21/22 on cost efficiencies.
CGS-CIMB said Digi has cut its FY20 guidance for service revenue to low/mid-single digit decline (previous: low-single digit decline) and EBITDA to mid/high-single digit decline (previous: mid-single digit decline), with capex guidance unchanged (stable y-o-y).
JF Apex Securities has upgraded its call to a “buy” from “hold’’ with an unchanged target price of RM4.75 a share following the stock’s recent selldown with value re-emergence.
It said its target price is derived based on DCF valuation with a weighted average cost of capital of 5.8% and a long-term growth rate of 2%.
JF Apex said its target price also implies a 24.4x FY20 price earnings ratio based on EPS of 18 sen.
The house maintains its earnings forecast for FY20 and expects earnings momentum to carry into the fourth quarter.
Digi’s net profit for the third quarter ended Sept 30,2020 fell 9.9% to RM320mil from RM356mil earlier. This is due to margin slowdown compounded by Covid-19 pandemic and higher depreciation cost.
For the nine months ended Sept 30, total revenue was stagnant at RM4.59bil (-1%), as device sales supported a 3% decline in service revenue.
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