Softening telco industry a threat to DiGi: Analysts

PETALING JAYA: DiGi.com Bhd could face difficulty to exceed its revenue growth guidance if the outlook for the telco industry remains soft, according to analysts.
RHB Research in a research note last Friday said even though DiGi is expected to continue outperforming its peers, but its financial performance still depends on the overall market condition.
"As Maxis and Celcom both have lower revenue growth guidance, it is not surprising that DiGi continues to gain market share. However, we believe it may be challenging for DiGi to exceed its guidance, should industry revenue growth remain soft," it said.
DiGi management expects 4% to 6% growth in revenue for FY13, with 5% growth achieved for the first half.
However, the research house noted that the impending goods and services tax (GST) implementation could be a potential boost to its earnings.
RHB Research has maintained a "buy" call on DiGi, with a higher target price of RM6.50.
CIMB Research opined that DiGi will still do relatively well with continued market share gains, driven by its 3G coverage expansion to 86% by year-end, bringing it finally on par with Maxis and Celcom.
The research house expects DiGi to outperform its Malaysian telco peers in terms of revenue and earnings growth over the next three years. DiGi will also be the biggest beneficiary of the ability to pass on the 6% GST to prepaid users as it has the highest mix of prepaid revenues.
RHB Research is positive on DiGi's postpaid subscriber growth, which is partly attributable to affordable smart phone bundling.
"We expect DiGi to remain careful on handset subsidies and do not expect its 2H14 EBITDA margin to come under significant downward pressure," it said.
Meanwhile, the management said it is making progress on its proposal to set up a business trust, but declined to commit a specific timeline.
While DiGi's 2Q14 results were commendable, Public Research believes its year-to-date share appreciation has largely priced in its earnings growth expectations and limited upside seen from the current price level.
The research house is maintaining a "neutral" call on DiGi, with RM5.40 target price.
MIDF Research has revised upwards FY14 and FY15 earnings forecasts for DiGi by 14.6% and 11.1% respectively, supported by better-than-expected results, while reiterating a "buy" recommendation with a higher target price of RM6.50.