KUCHING: Following DiGi.Com Bhd’s (DiGi) release of its quarterly report on consolidated results for the financial period ended September 30, analysts have revealed that they are generally still positive on the group despite increasing competition.
Touching on DiGi’s service revenue growth, the research arm of CIMB Investment Bank Bhd (CIMB Research) noted that growth in the third quarter of 2014 (3Q14) slowed further to two per cent year on year (y-o-y) (1Q14: 5.3 per cent, 2Q14: 2.8 per cent) due to the more competitive market, as well as challenges from DiGi’s migration to its new converged billing platform.
Nevertheless, CIMB Research opined that the strong prepaid subscriber growth in 3Q14, +4.8 per cent quarter on quarter (q-o-q), positive seasonality as well as the launch of several popular smartphones could see a healthier service revenue growth trajectory in 4Q14.
“Going into 2015, we expect DiGi’s service revenue growth to accelerate to 5.8 per cent y-o-y due to the GST impact as well as the full benefits from its 3G coverage expansion,” the research arm said.
CIMB Research also pointed out that DiGi’s mobile internet/broadband revenue continued to grow strongly in 3Q14, up 9.8 per cent q-o-q (+40.3 per cent y-o-y).
The research arm noted that this was in-line with the substantial 5.1 per cent pts q-o-q rise in smartphone penetration to 47 per cent, driven by prepaid smartphone bundles.
“We believe there is still room for this to rise given the increasing affordability of entry-level smartphones, as well as opportunities to drive greater and more frequent data usage among its prepaid user base,” it said. According to AmResearch Sdn Bhd (AmResearch), despite increasing competition, it likes DiGi for stock specific reasons.
These include the fact that DiGi is the biggest beneficiary of goods and services tax (GST), has much better ability to monetise subs via a modernized network and, is the biggest beneficiary of affordable smartphone introductions given its niche in prepaid and lower market segments.
In addition, the research house likes DiGi as it is the potential beneficiary of spectrum refarming given its current disadvantage in lower spectrum bands and for its 3G data coverage expansion.
As for RHB Research Institute Sdn Bhd (RHB Research), the research house continues to like DiGi for its superior data revenue growth, strong prepaid value proposition and execution track record.
“While the GST impact remains uncertain, DiGi stands to be the strongest beneficiary in the event of a full pass through as it has the highest prepaid revenue contribution among its peers at an estimated 65 per cent,” RHB Research said.
Overall, the research house left its financial year 2014/2015 (FY14/15) forecasts for DiGi unchanged but nudged up its FY16F earnings per share (EPS) to factor in the one percentage point (ppt) reduction in corporate tax rate.
“Note that we have not reflected the GST impact into our forecasts to err on the conservative and our belief is that the eventual earnings impact from the implementation could be diluted somewhat,” it said.
RHB Research further noted that DiGi’s capital expenditure (capex) of RM671 million year to date (YTD) is in line with its full-year guidance of RM900 million and its expectation.
“DiGi remains our top telco pick in Malaysia,” it added.