Analysts downgrade Digi’s earnings forecast

PETALING JAYA: Analysts have revised downwards Digi.Com Bhd's earnings forecasts for the next few years due to higher operating cost, lower prepaid average revenue per user (ARPU) assumptions and the weak results it had in the fourth quarter ended Dec 31, 2015 (Q4FY15).
MIDF Research revised its earnings forecast for Digi by less than 16.1% for 2016, by taking into account the telco's lower service revenue, higher-than-expected operating expenditure and higher depreciation and amortisation charges in FY15.
For Q4FY15, Digi's earnings decreased 31.7% year-on-year to RM382.4 million, due to strong competition, elevated cost from the weak ringgit and higher cost from high speed data network expansion.
"We are revising our target price to RM5.34 per share from RM6.70 per share based on DDM (dividend discount model) valuation methodology. This implied a forward FY16 price earnings ratio of 23.5 times," its analyst Syed Muhammed Kifni said in a report yesterday.
He said the telco's higher subscriber acquisition cost and lower ARPU have impacted the profit margin, and expects the intense competition landscape to remain in the immediate term.
"This would, in turn, lead to subdued earnings growth prospect. Though we do not see any rerating catalysts in the immediate term, we view that the stock offers attractive dividend yield of more than 4% as compared to its listed peers."
The research house cut Digi to "neutral" from a "buy" previously, after considering all factors.
Meanwhile, PublicInvest Research lowered its earnings forecast for Digi by 4%-6% for FY16-17, and maintained its "neutral" call with a revised target price of RM5.40.
Its analyst Eltricia Foong said the telco's gearing remained comfortable with a net debt to earnings before interest, tax, depreciation and amortisation (ebitda) of 0.4 times, which is sharply lower compared with its peers.
"As such, we believe Digi should be able to tolerate a more expensive spectrum cost as it has ample room to leverage up without significantly compromising its dividend payout," Foong said in a report yesterday.
AmInvestment Bank kept its "hold" call on Digi, with a lower discounted cash flow derived RM5.50 per share (from an earlier RM5.57 per share), as it reduced its FY16-17 net profit by 6-8%.
"We maintain our FY16FFY17F payout assumptions of 100% given that the group's net debt/ebitda of 0.3 times is low compared with the sector's 0.9 times."