DIGI.COM Bhd (Digi) saw its results for the first quarter of its 2020 financial year (FY20) come in within analyst expectations, with analysts noting the group is resilient despite being weighed down by Covid-19.
Digi saw a net profit of RM332 mil, which is a 2.8% drop year-on-year (yoy) due to higher device cost and investments alongside postpaid contracting, renewal, and upgrading activities.
However, TA Securities noted that this has contributed to a more sustainable revenue mix.
“Service revenue declined, but only marginally by 0.4% to RM1.387 bil, largely due to lower regulated interconnect rates, declining legacy voice, and lower roaming revenues as business and travel activities slowed amid the Covid-19 pandemic.
“If interconnect revenues are excluded, service revenue will improve marginally by 0.7% yoy to RM1.366 bil,” said its analyst Wilson Loo.
A shift was also noted by Digi with regard to customer behaviour and traffic during the Movement Control Order (MCO), according to Affin Hwang Capital analyst Isaac Chow.
“Geographically, data usage has shifted from urban business areas to residential areas, with an increase in data consumption, especially between midnight and 8am, and between 8am to 6pm, up 29% from pre-MCO figures.
“There was also an increase between 6pm to midnight, though lower at 16%. Digi also noted that the resource demand for video and gaming applications has more than doubled,” said Chow, adding that Digi has shared that its network is capable of handling the increase in data consumption and does not expect a cost escalation.
Chow also noted that Digi had not shared regarding mobile average revenue per user (ARPU) during the MCO period, but believes that prepaid ARPU will slip due to the free 1GB daily data provided by all telcos during the period.
JF Apex Securities analyst Lee Cherng Wee noted that Digi is still looking at a steady operating cash flow, remaining flat at RM617 mil compared to RM612 mil previously due to lower capital expenditure, while net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) was steady at 1.5x.
A dividend of 4.2 sen per share was also declared, with Lee expecting a full-year dividend of 18 sen for Digi’s FY20. Lee also expects Digi to remain resilient, with continued discipline in cost efficiency and strong cash flow.
MIDF Research analyst Martin Foo Chuan Loong noted that, while capital expenditure was lower for the quarter, it is likely to increase in the coming quarters as Digi is expected to frontload some of its capital expenditure allocation.
“This will form part of the larger RM400 mil additional network investment among the telcos to support increased demand and provide continued network availability and capacity,” said Foo, adding that the capital expenditure for the first quarter was mainly to support capacity upgrades and fibre network expansions.
AllianceDBS Research analyst Toh Woo Kim noted that Digi had also undertaken several network management initiatives to maintain the quality and consistency of its network, such as prioritising traffic optimisation to cater to the increasing demand in residential areas, prioritising the quality of service to mission critical and essential services, as well as collaborating with application providers to reduce bandwidth demand, with an example being lower video resolutions for video-streaming services.
AmInvestment Bank analyst Alex Goh noted that Digi will be revisiting its guidance for the coming year due to the MCO, the Covid-19 pandemic, and the economic outlook.
Previously, Digi had expected a flat low single-digit drop for service revenue, citing a continued fall in prepaid and legacy customers, and a 0.96 sen decline in mobile termination rates this year.
TA Securities and Affin Hwang Capital both maintained sell calls, maintaining their respective target prices of RM4.40 and RM3.80. JF Apex Securities and MIDF Research also maintained their respective hold and neutral calls, while maintaining their target prices of RM4.75 and RM4.30 respectively.
AllianceDBS Research maintained a buy call, believing Digi’s earnings will stay resilient amid the ongoing macroeconomic uncertainties and the Covid-19 pandemic, while maintaining its target price of RM4.80
AmInvestment Bank downgraded Digi, however, from buy to hold, citing the 15% rise in share price since the previous upgrade on March 18. The research house also lowered its fair value for the stock to RM4.55 from a previous RM4.70.
At the end of the morning’s trading, Digi’s shares were last done at RM4.35, down 15 sen, with 2.18 million shares traded. – April 24, 2020
