Research houses cut Digi's earnings forecasts

PETALING JAYA: Analysts have cut Digi.com Bhd’s earnings forecasts by as much as 9.4% after it registered a 14.7% drop in its second-quarter earnings.

Digi shares fell 4.7% to an intra-day low of RM4.67 before closing 17 sen or 3.5% lower at RM4.73 on some 10.15 million shares traded, giving it a market capitalisation of RM36.68 billion.

PublicInvest Research foresees Digi’s earnings trending downwards as the mobile market becomes more saturated amid rising competition.

Although data and internet usage is expected to grow strongly, ineffective data monetisation and heavy investment into network infrastructure is likely to cap earnings growth.

Nevertheless, PublicInvest Research, which is maintaining a target price of RM5 for Digi with a “neutral” call, believes the telco will maintain a relatively high dividend payout ratio of 95% due to its strong balance sheet, which translates to a dividend yield of about 4%.

Digi has declared a second interim dividend of 4.6 sen, bringing a total dividend of 9.3 sen for the first half. For full-year FY17, PublicInvest Research forecast a dividend per share of 19.1 sen based on the 95% payout ratio.

Kenanga Research noted that the country’s top three incumbents are likely to face stiff competition ahead in view of the growing acceptance of U Mobile, whose network quality is set to be improved significantly post the activation of the 900Mhz and 1800Mhz spectrum.

Besides that, it said, the prolonged weak consumer spending sentiment could potentially weigh on Digi’s data monetisation road path.

Kenanga Research has trimmed Digi’s FY17 and FY18 net profits by 4% each, following the revision of the service revenue growth target to -5%/+2.5%, from
-4%/+2% previously; as well as interest expenses assumption. The research house is maintaining a “market perform” call on Digi, but with a lower target price of RM4.85.

MIDF Research is revising Digi’s FY17 and FY18 earnings downwards by 9.4% and 7.5% respectively, based on the assumption of lower service revenue contribution from the prepaid segment. It also revised downwards Digi’s target price to RM5.02 due to earnings downward revisions.

The research house said the overall subscriber base, average revenue per user and service revenue were undermined by the contraction in the prepaid segment in view of heightened competition among its peers.

However, MIDF Research said it observed that there is strategic shift in service revenue mix which will further enable digital opportunities.