DiGi’s FY12 net profit of RM1.2bn (-3.9% y-o-y) was broadly in line with our and consensus forecast despite a drop in 4Q earnings. Meanwhile, management has also announced a 4th interim net DPS of 2.5sen. This translates to 4Q EPS payout ratio of 80%, which is a little shy of our earlier expectations of a 100% payout. For the full-year, DiGi has declared DPS of 26.3 sen or 5.5% dividend yield inclusive a 12sen special dividend announced in 3Q.

Revenue (Q-o-Q: +3.0%, Y-o-Y: +5.4%). Revenue growth was driven primarily by data, which grew by 6% q-o-q to RM488m while voice revenue was marginally lower, down 0.6%. This was particularly due to competitive pricing in the IDD segment, which accounts for about 20% of DiGi’s sales contribution. Meanwhile, data contribution has seen a continuous climb thanks to the shift of usage from voice to data applications. Handset sales also recorded encouraging growth, up 21.2% driven by recent launches of Samsung Galaxy Note II and iPhone 5.

Net profit (Q-o-Q: -22.2%, Y-o-Y: -37.7%). Though topline grew positively, the bottomline was hit badly due to heightened cost pressures, up 7.4%, attributed to i) higher accelerated depreciation, ii) higher handset related expenses and iii) increase in traffic related expenses as well as higher effective tax rate of 31.7% for the quarter.

Net adds improved. 4Q total net adds jumped to 193k (3Q12: +75k) supported by new & refreshed offerings for both existing and new subscribers. Prepaid subscriber base grew by 176k (3Q12: +67k), while postpaid added 14k only (3Q12:+8k). Meanwhile, decline in mobile broadband subscribers (big screen) continued in the last quarter, down 25K (3Q12: -22K) as a result of stiffer competition and less aggressive on broadband customer acquisition due to unattractive margins. Prepaid ARPU remained at RM41 while Postpaid ARPU slightly increased to RM83 from RM82 attributed to higher data usage.

Upgrade to OUTPERFORM. We upgrade our call from Neutral to Outperform with an unchanged TP of RM5.59 as valuations have started to look appealing again after the recent selling pressure in local market amid election-related concerns. We suggest buying on weaknesses however giving the prevailing sentiments, we reaffirm our views of stronger market and share price upside over the medium term.

Source: PublicInvest Research - 07 Feb 2013