Digi to strengthen position via Celcom merger


THE planned merger between Celcom Axiata Bhd and DiGi.Com Bhd is expected to cement Digi’s position as the leading telecommunications service provider in Malaysia, analysts said.

MIDF Amanah Investment Bank Bhd (MIDF Research) said the potential merger will positively affect Digi’s business prospects although such scenario is premature at this juncture.

“Since 2019, Digi’s revenue has been under siege mainly in view of the intense competition among the peers. The Movement Control Order (MCO) which took place in, second quarter of 2020 (2Q20) had further impacted the group’s ability to generate revenue.

“It has also led to a shift in revenue mix — lower voice and lower roaming revenues — which has negative implications on the profit margin,” it said in a note yesterday.

The concern, however, was partially allayed by a higher mix of postpaid revenue, as well as cost improvement on the operating expenditure.

The research house maintained its ‘Neutral’ call on Digi, with an unchanged target price (TP) of RM3.84 which implies a forward price-earnings ratio of 24.7 times.

MIDF Research said the easing of the MCO would also help the group regain the attrition in its subscriber base.

It is unlikely the group’s earnings will return to pre-pandemic levels in the foreseeable term, with the company’s dividend yield expected to hover around 4% given its subdued earnings outlook.

Digi saw its 1Q21 net profit fall 20.23% to RM264.83 million as turnover for the period also fell marginally to RM1.55 billion from RM1.56 billion attributed to lower non-Internet contribution. The telecommunications service provider declared a first interim dividend of 3.4 sen per share for the quarter.

MIDF Research said Digi’s 1Q21 financial performance came in within its and consensus expectations, accounting for 24% and 24.8% of the full financial year 2021 earnings estimates respectively.

Digi’s subscriber base for the quarter had also contracted to 10.3 million customers against 11 million subscribers a year ago, predominantly due to lower prepaid customer base.

However, the contraction was partly offset by the expansion of postpaid subscribers which increased by 0.9% to 3.09 million users. The recovery mainly stemmed from Digi’s new postpaid portfolio to drive focused acquisition.

Hong Leong Investment Bank Bhd (HLIB Research) has maintained ‘Hold’ on Digi with unchanged TP of RM4 and earnings forecast.

HLIB Research analyst Tan J Young stated that Digi’s 1Q21 core net profit of RM264 million matched its expectations accounting for 24% and 23% of full-year forecasts respectively.

“We see a long recovery journey ahead as the free 1GB daily quota will erode its data monetisation opportunity. While waiting for more clarity on merger and 5G special purpose vehicle, dividend yield of 3.4% should sustain share price in the near term,” he said.

He noted that sequentially, Digi’s postpaid expanded subscription base at the expense of average revenue per user (ARPU) erosion, while prepaid continued to see attritions which may artificially lift ARPU.