RESEARCH house JF Apex Securities Research has upgraded its call on telecommunicatons service provider DiGi.Com Bhd from “hold” to “buy” as the telco remained resilient with continued discipline in cost efficiency and strong cashflow.
However, it cautioned that major risks include more intense lockdown measures due to COVID-19, market competition from other telcos, 5G capex investment and lower-than expected profit margin.
“We upgrade to ‘buy’ with an unchanged target price of RM4.75, following the stock’s recent sell-down with value re-emerges,” wrote JF Apex analyst Lee Cherng Wee in a note today.
For its third quarter ended Sept 30, 2020 (3QFY2020), DiGi registered a 10% decline year-on-year (yoy) in its net profit to RM321 mil due to higher costs of goods sold (COGS) that was driven by the rising demand for technology and digital adoption.
Similar to JF Apex, TA Securities also upgraded its call on DiGi to “buy” from “hold” but with a slightly lower target price of RM4.40 due to signs of stabilisation from the pre-paid segment despite concerns on the declining year-on-year net profit.
“We have lowered our FY2021/FY2022 earnings estimates 7.7%/6.6% mainly after lowering the corresponding years’ post-paid service revenue by 10.3%/10.7% with anticipation for a slower recovery due to lingering COVID-19 pandemic and continued travel restrictions,” noted analyst Wilson Loo.
“Despite that, we remain optimistic on DiGi’s ability to sustain its path to recovery, underpinned by on-going efforts to stabilise the prepaid segment, drive retention and quality acquisition from the post-paid segment, and nascent growth prospects from B2B,” added Loo.
Meanwhile, CGS-CIMB Research maintained its “hold” call on DiGi, factoring in its slightly lower revenue, stiffer competition and higher device and digital service costs.
“The higher effective tax rate led to core earnings per share easing 2.4% quarter-on-quarter, which was partly buffered by lower interest cost,” said its analyst Foong Choong Chen.
As of 2.25pm today, DiGi.Com Bhd’s share price was unchanged at RM3.98 with 359,400 shares traded, giving the company a market capitalisation of RM30.91 bil. – Oct 19, 2020
