A slow start
1Q22 results were in line with our forecasts but below consensus, with
consensus forecasts seemingly yet to reflect the effects of Cukai Makmur.
Despite further service revenue decline in 1Q22, management remains
optimistic on eventually delivering growth for FY22. Maintain HOLD with
an unchanged DCF-based TP of MYR4.00. We prefer TM (T MK, BUY, CP:
MYR4.99, TP: MYR7.50 in the space.
Results in line with ours but below consensus
Digi’s 1Q22 net profit of MYR236m (-11% YoY, -22% QoQ) represents
23%/20% of our/consensus full-year forecasts respectively. The net profit
decline was mainly due to higher taxes as Cukai Makmur took effect
(seemingly not yet reflected in consensus forecasts). A first interim DPS
of 2.9sen was declared (-15% YoY, -26% QoQ), again representing c.100%
payout ratio.
Revenue trends still soft
1Q22 service revenue declined 1.0% QoQ and 2.2% YoY, with further
prepaid decline (lower subscribers and ARPU) being partly offset by slight
postpaid growth (higher subscribers, lower ARPU). Management cited
generally lower prepaid usage partly attributable to the expiry of the
PRIHATIN subsidies. Meanwhile, costs were lower sequentially on lower
device costs. Consequently, 1Q22 EBITDA margin expanded by 2.0ppt
QoQ to 48.7%.
Maintaining earnings
Management is maintaining its FY22 guidance of stable EBITDA on service
revenue growth. Our earnings forecasts and MYR4.00 TP (DCF-based
assuming 6.8% WACC and 2% LT growth) are unchanged. CEO Albern Murty
will take a temporary leave of absence effective 28 Apr due to family
reasons. CMO Praveen Rajan will assume CEO-related duties and
responsibilities on an acting basis.