By A. Stephanie
Digi.com Bhd was upgraded to “buy” by MIDF Research today, from “neutral” previously despite posting lower profits for the first quarter ended March 31, 2015 (1Q15).The telco giant reported 1Q15 earnings of RM479.2 million yesterday, down marginally 1.2% from the previous corresponding period.
Revising its target price for the counter from RM6.50 upwards to RM7.04, the research house made a “buy” recommendation on Digi, making the counter its top pick in the mobile sub-segment.
Its analyst remarked, “Digi has a strong management team. Based on the company’s historical track record, it has managed to compete with its peers despite its subservient position in the spectrum allocation domain. This was shown in its ability to move in-tandem with the demand of the market, especially the prepaid segment.
“Furthermore, the latest earnings result has shown that there is encouraging growth in the postpaid segment which was usually dominated by its peers. The stock also offers higher dividend yield of more than 4% as compared to its peers,” MIDF Research stated.
Meanwhile the research house said Digi’s marginal decrease in 1Q15 earnings marked seasonal decline in earnings for the first quarter of the year. It noted, “Historically, the first quarter has generally been the weakest quarter for the year. Earnings still came in within our and consensus expectations, accounting for 23% and 22.9% of full year estimates respectively.”
Digi’s revenue increased by 4.3% year-on-year (y-o-y) to RM1.79 billion for 1Q15 bolstered largely by a 2.2% increase in service revenue to RM1.59 billion for the same period. Lower earnings before interest, taxes, depreciation, and amortization (Ebitda) margin registered in 1Q15 was a move to capture service revenue opportunities from higher smartphone bundles.
Higher service revenue was attributed to an increase in Digi’s internet subscribers of 806,000 y-o-y, expanding further its customer base to 11.7 million subscribers despite stiff competition from its peers.
“The growth in the customer base mainly stemmed from the expansion in Digi’s internet subscribers which topped 6.6 million. Of this, 44% of the internet subscribers used more than 500 megabytes (mb) of data. Meanwhile, average revenue per user (ARPU) moderated to RM46 in 1Q15 from RM48 in 1Q14,” the MIDF Research report noted.
Digi’s postpaid sub-segment service revenue increased by 1.6% y-o-y to RM434 million, led by a 14.6% yoy growth in internet revenue. Its postpaid subscription base swelled by 72,000 in the same period to 1.76 million users, fuelled by solid demand for smartphone bundles and increased internet-centric subscriptions. Meanwhile, ARPU remained resilient at RM81, in- tandem with 1Q14 as traditional voice and messaging revenue continued to decline further.
The research house noted that Digi’s capital expenditure (capex) declined by 4.4% y-o-y to RM193 million, resulting in lower capex-to-revenue ratio of 11% from 12% in 1Q14. “Digi continues its 3G and long-term evolution (LTE) high-speed data network coverage expansion which has now reached 86.4% and 33.3% of the population respectively,” its analyst said.
The telco declared dividend of 6.1 sen per share for the quarter compared to 6.2 sen per share declared in 1Q14. As at noon today, Digi was trading on Bursa Malaysia at RM6.14, down five sen or 0.81% from its previous closing price of RM6.19.
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