Analysts neutral on Digi’s prospects, company upbeat about hitting target

PETALING JAYA: Analysts remain neutral on telecommunications player Digi.com Bhd’s prospects moving forward, as its management is confident of achieving its target for the current financial year.

Digi held a briefing with analysts to introduce its new chief financial officer Nakul Sehgal and to provide the company’s operational updates.

Sehgal, who has served Telenor Hungary previously, took over the new position earlier this month.

Kenanga Research, which made no changes to Digi’s earnings forecasts, said that the company remained confident in delivering its financial year 2017 targets, despite expecting the industry’s competition to remain fairly active in the remaining months.

The Main Market-listed Digi expects a low to mid single-digit year-on-year decline in service revenue, a stable earnings before interest, tax, depreciation and amortisation (EBITDA) margin at 45% and capital expenditure at 11%-13% of service revenue.

“The management believes the aggressive competitive pricing model is not sustainable for the long-run and thus will continue to focus on strengthening its network quality via the newly assigned 900Mhz spectrum, as well as digital innovations to sustain its long-term growth.

“Besides that, the company will continue to move away from non-profitable segments to other segments to provide total business solutions for both the small and medium enterprises (SME) and other large enterprises to yield better margin,” said the research house in a note.

Digi said that its service quality has improved following the deployment of LTE 900MHz sites since July 1.

Meanwhile, AmInvestment Bank Research pointed out that the company aimed to continue to capitalise on its first-mover advantage in digitalising customer experience, pro- cesses, as well as marketing and distribution channels.

Digi’s management opined that its digitalisation journey, involving storage and analytics, has reached only slightly above the halfway threshold.

The research house projected Digi’s digitalisation move to only bear fruit in the long run.

“We do not expect Digi’s efforts in monetising its digital platforms to materialise in the near to medium term.

“The management has recently lowered its FY17 service revenue guidance to a lowto-mid-digit decline amid unabated competition among cellular operators, given the need to constantly offer more attractive value propositions to consumers.

“Hence, the prospects for Digi’s service revenue trajectory next year are ambiguous at this stage.

“Given the highly competitive landscape, we expect Digi’s subscriber growth and average revenue per user or Arpu to remain under pressure as both Maxis and Celcom are already aggressively improving 4G coverage and service quality,” said the research unit.

On the other hand, UOB Kay Hian Research said that Digi’s service revenue could be slightly affected going forward, as the prepaid migrant market is expected to remain challenging in the near term.

“The ongoing crackdown on illegal immigrants together with a weak ringgit and the economic slowdown have contributed to a 1% year-on-year contraction in Digi’s service revenue for the first half of the year,” the research house said.

“We expect the situation to remain a challenge to the group well into the second half, as Digi has guided for a low- to-mid single digit decline in service revenue for the full year,” it added.

UOB Kay Hian Research projects the telecommunications player to achieve core net profit of RM1.49bil and RM1.59bil in 2017 and 2018 respectively.