Digi’s settlement agreement with Telenor has no impact on analysts’ forecasts
KUALA LUMPUR: Digi.Com Bhd’s (Digi) settlement agreement with the Telenor group has had no impact on analysts’ forecasts for Digi.
In a filing on Bursa Malaysia, Digi’s board of directors announced that wholly-owned subsidiary Digi Telecommunications Sdn Bhd had on January 17, 2018 entered into a settlement agreement with Telenor IT Asia Sdn Bhd and Telenor Global Shared Services AS to terminate and exit the Memorandum of Understanding (MoU) and Service Order for Information Technology (IT) Infrastructure Services between the parties entered on November 7, 2014 and November 25, 2016 respectively.
Following this latest development, AmInvestment Bank Bhd’s (AmInvestment Bank) forecasts were unchanged as Digi’s payment of RM14 million to the Telenor group to terminate a MoU and service order for IT infrastructure services accounts for less than one per cent of FY18F earnings.
“As this termination between related parties involves only the enterprise IT infrastructure, Digi’s strategic procurement processes with Telenor group for its telecommunication equipment and technology platforms will continue as usual.
“Hence, Digi will still benefit from the synergies and economies of scale as part of the larger Telenor group, which currently has a 49 per cent equity stake in Digi,” the research firm said.
Meanwhile, AmInvestment Bank expected Digi to be reinstated to the Securities Commission’s syariah compliance list in its May 2018 review, following the group’s exclusion on November 24, 2017 as the percentage of conventional debt would have fallen to 30 per cent of its total assets as at December 31, 2017, from 41 per cent as at December 31, 2016, versus the 33 per cent minimum threshold.
The research firm recalled that the temporary jump in conventional debt stems from the lumpy payment of RM599mil for the spectrum fees of the 900 megahertz (MHz) and 1800MHz bands on November 1, 2016, which has been rectified with the issuance of a sukuk bond programme of up to RM5 billion in the second quarter of FY17 (2QFY17).
AmInvestment Bank expected the 4QFY17 results, which will be announced on January 23, to be generally within the research firm’s expectation.
“The prepaid segment, which accounts for 80 per cent of 3QFY17 subscribers, is likely to contract further on competitive pressures in the low-income market amid declining migrant workers.”
Given the highly competitive landscape, the research firm also expected Digi’s subscriber growth and average revenue per users (ARPUs) to remain under pressure as both Maxis Bhd and Celcom Axiata Bhd are also aggressively improving 4G coverage and service quality.