WITH its share price having appreciated following news of its merger with Celcom Axiata and with details yet to trickle down at this juncture, analysts have become wary of DiGi.com Bhd’s outlook.
As the merger details remain unavailable, PublicInvest Research has lowered its rating on DiGi to “neutral” from “outperform” given the limited upside, pending further information on the proposed merger with Celcom Axiata.
“Following the announcement of the proposed merger exercise, DiGi’s share price has rallied, resulting in a lower upside to our target price of RM4.50,” opined analyst Eltricia Foong in a company update.
Moreover, the third largest mobile operator in Malaysia with strong positioning in the prepaid segment and youth market has recently reported a 20.2% year-on-year decline in 1Q FY2021 net profit to RM264.8 mil (1Q FY2020: RM332 mil), dragged mainly by higher interest cost due to mark-to-market adjustments on interest rate swaps.
The proposed merger with Celcom Axiata is due for completion by early-2022 with the signing of definitive agreement by mid-2021.
“Post-merger, we believe there will be minimal impact on existing customers as they will be given the choice to maintain their telco brand,” suggested PublicInvest Research.
“Although details on merger valuations remain sketchy, our preliminary assessment suggests that Digi’s equity is being given a higher valuation compared to Celcom’s.”
Essentially, the DiGi-Celcom Axiata merger is to facilitate the sharing of resources in network optimisation and the development of 5G technology.
Given a stronger financial capability, the merged entity would be able to fulfill the increasing demand for network coverage at higher speed and lower price in line with the country’s aspiration to achieve greater digital adoption rate.
Meanwhile, TA Securities Research lowered its rating on DiGi to “sell” from “buy” (but maintained its target price at RM4.10) with the telco’s risk reward potential narrowed following the recent run up in its share price post the merger announcement.
“For reference, DiGi’s share price has appreciated 11.7% following the announcement of its merger on April 8,” noted analyst Wilson Loo.
“Reflecting the challenging outlook amid the prevailing COVID-19 pandemic, the management maintained its earlier guidance for FY2021 service revenue to decline by low-single digit, and EBITDA (earnings before interest, taxes, depreciation and amortisation) to decline by mid-single digit.”
At 10.30am, DiGi was up 1 sen or 0.24% to RM4.20 with 119,500 shares traded, thus valuing the company at RM32.65 bil. – April 26, 2021
