Ringgit posing challenges to Digi’s IDD segment
KUCHING: The recent weakness in the ringgit may pose challenges to DiGi.com Bhd’s (Digi) International Direct Dialing (IDD) segment due to higher traffic costs and smaller migrant wallet share.
TA Securities Holdings Bhd (TA Securities) said under constant conditions, for every one per cent increase in Digi’s traffic cost, its earnings will decrease by 0.5 per cent.
In response to this, Digi has since recalibrated its IDD prices since the second quarter of financial year 2016 (2QFY16). However, this recalibration has not factored in the recent further weakness to the ringgit.
With current average US dollar-ringgit rates for 4Q16 standing at RM4.30, a 6.3 per cent increase from the previous quarter, it seems an upward repricing may be on the horizon, but existing competitive pressures may limit Digi’s ability to do so.
With heavy challenges in its IDD segment, Digi has attempted to ease its volatility and also the group’s dependency on the segment and migrant market by shift- ing its focus onto gaining a larger share of Malaysian subscribers instead.
To accommodate to the data orientated Malaysian subscribers, Digi has recently refreshed its postpaid packages, doubling its data allocation to 20 gigabytes (GB) at the same price of RM80 per month.
Similarly, offerings in Digi’s prepaid packages were also bumped up to include 50 per cent for quota for its data add-ons.
“We expect this trend to sustain into 2017 – underpinned by the entrance of Webe Sdn Bhd (Webe), and the spectrum reallocation exercise and efforts by Celcom Axiata Bhd (Celcom) to regain market share,” it said in a report yesterday.
“With no announcements made to extend the duration of the Goods and Services Tax (GST) prepaid rebate, this may also have an impact on prepaid usages in 2017.”
Like its main competitor, Celcom, Digi will also be working on a new spectrum; its spectrum migration exercise is currently being carried out in phases, beginning September 2016 until June 2017.
The exercise involves the migration of base station to new reallocated spectrum blocks, the exercise is expected to be on track with all operating in their new spectrum block by the end of June 2017.
While there are still no updates in regards to a further review of spectrum in the 700 megahertz (MHz), 2,300MHz, and 2,600MHz bands, the research arm has speculated that ideally, Digi will be aiming to have approximately 10 to 15Mhz of lower band spectrum.
With projections of flattish earnings for Digi in 2017 coupled with expected sustained competitive pressures and challenges in its IDD segment, TA research has left their earnings estimates unchanged.
The research house maintains its ‘Sell’ call on the stock, and values it at a target price (TP) of RM4.95.
“We believe the stock is fairly valued, as it trades slightly above its historical average Enterprise to EBITDA value at 13.3 fold,” concluded the research house.