Digi.Com - 4QFY12 results hit by higher costs

Period    FY12/4Q12

Actual vs.  Expectations    Digi’s FY12 NP of RM1.21b (-3.9% YoY) came in below ours and street’s full-year estimate by 6.9% and 7.5%, respectively. However, its full-year turnover of RM6.36b was in line with ours as well as the consensus’ estimate.  

Dividends   Declared fourth interim NDPS of 2.5 sen (ex-date: 20 Feb), so FY12 total NDPS is 26.3 sen, which translates to a 169% payout. FY12 NDPS is below our expectation of 28.1 sen but above street’s estimate of 25.4 sen. 

Key Result Highlights   YoY, Digi’s FY12 revenue rose by 6.7%, driven by higher data and service revenues. NP, however, was lower by 3.9% due to a lower EBITDA margins as a result of the competitive IDD pricing and higher handset subsidy. The higher effective tax rate of 24.2% (vs. 19.6% a year ago) also weighed down the group’s performance. 

 QoQ, revenue was up by 2.9% to RM1.63b on the back of higher service revenue. The total cost base rose by 3.8% to RM906m, no thanks to the higher handset and traffic-related expenses. Digi also incurred a higher effective tax rate of 31.7% as compared to the statutory tax rate of 25.0% due mainly to the reversal of prior quarters’ broadband network-related tax incentives. All in all, Digi’s  NP was lower by 21.9% to RM246.0m. 

 Meanwhile, 4Q12 EBITDA margin fell to 44.5% (3Q12: 45.2%) as a result of IDD margin pressure and a higher handset subsidy. Nevertheless, the group still managed to record a 46% growth for the full year, in line with the management guidance.  

 The 190k net adds in 4Q12 (3Q12: 75k) comprised of 176k new prepaid users and 14k from the postpaid segment. Prepaid ARPU was flat at RM41 while postpaid ARPU rose to RM83 (3Q12: RM82).   

 Data revenue accounted for 32.7% (3Q12: 31.3%) of Digi’s service revenue, which stood at RM1.49b. Smartphone users accounted for 26.4% (2Q12: 24.8%) of its total 10.5m subscriber base.

Outlook   FY13 earnings guidance includes 1) a 5%-7% rise in revenue and 2) the EBITDA margin to be sustained at FY12 level. 

Change to Forecasts    We have lowered FY13 and FY14 NP by 2.2% and 4.1% after raising our cost of materials assumption. We have also reduced FY13 and FY14 targeted dividend payout ratio to 85% from 100% previously.

Rating     Maintain OUTPERFORM rating. 

 

Valuation   Our TP has been reduced to RM5.60 (from RM5.77 previously) based on an unchanged targeted FY13 EV/forward EBITDA of 14.4x (+2.0SD). 

Risks   Intensifying competitions.   

Source: Kenanga