KUALA LUMPUR (Jan 24): DiGi.Com Bhd’s prepaid segment is expected to continue contracting given heightened competition, however this shift could further enable digital opportunities for the telecommunications group, say analysts.

MIDF Amanah Investment Bank Bhd Research's Martin Foo Chuan Loong in his note today said such shift may lead to continuous positive traction from the group’s postpaid segment instead.

“As expected, the deployment of the 900Mhz has created positive impact on the postpaid segment by creating a more balancing playing field with its peers.

“However, we expect to see further earnings dilution from the prepaid segment, as we do not see competition on the prepaid landscape to abate anytime soon. This could potentially disrupt the prepaid market,” Foo said.

Yesterday, DiGi.Com posted a 3.9% net profit fall to RM360.08 million for its fourth quarter ended Dec 31, 2017 (4QFY17), from RM374.63 million a year ago, while service revenue was down 2.7% year on year to RM1.51 billion.

For the full year FY17, DiGi's net profit dropped 9.6% to RM1.48 billion from RM1.63 billion the previous year, while revenue fell 3.9% to RM6.34 billion, from RM6.6 billion in FY16.

FY17 service revenue stood at RM5.91 billion, down 5% y-o-y mainly due to lower revenue from prepaid legacy services.

While the results were broadly within expectations for MIDF, it was however not so much for Hong Leong Investment Bank (HLIB), citing core net profit as a disappointment. 

“FY17 core net profit of RM1.5bil was a disappointment, only accounting for 94.6% of HLIB full year forecast but within street’s expectation at 98.1%,” said HLIB in a note today.

HLIB maintains Hold on the stock, with a higher target price of RM5.10.

“[It is] still our favourite due to: (1) Highest dividend yielder; (2) Low frequency band to improve efficiency; (3) Shariah reinclusion; (4) Strong balance sheet to support spectrum fee; and (5) Prudent management,” HLIB said.

MIDF on the other hand maintains Neutral with a lower target price of RM4.62, on changes to earnings assumptions.

“In view of weaker prepaid service revenue, we are cutting our prepaid subscriber assumption to below nine million. We also fine tune our FY18 postpaid Average revenue per user (ARPU) assumption to better reflect the results thus far. All in, these led a more conservative FY18 earnings estimate of RM1,403.3million,” MIDF said.

At 11.03am, DiGi.Com dipped 0.41% or 2 sen to RM4.90, with 141,600 shares done.