Sterling second quarter for DiGiIt remains the preferred telecoms pick of research houses
PETALING JAYA: DiGi.Com Bhd, which announced another set of sterling results yesterday, remains the “preferred’’ telecoms pick of some research houses as it offers greater upside than the other two listed telcos, Telekom Malaysia Bhd ™ and TM International Bhd (TMI).
An analyst in his recent sector update maintained a “neutral” call on the sector as it offered defensive earnings amid an uncertain economic backdrop.
Affin Investment Bank said the cellular sector would continue to grow but the residential fixed line market would see a margin erosion. “We advocate avoiding the fixed line segment altogether.
We see increasing risk not only from lower tariffs but also intensifying residential fixed line drop-outs as alternative broadband solutions materialise,” it said.
To support its argument that the fixed line business would be flat, the report cited the experience of several regional operators such as KT Corp, China Netcom, Chunghwa and China Telecom.
Fixed line revenues of these players were flat or declining, but this was being compensated by other revenue streams, including wireless services. In TM’s case, however, it has transferred its cellular assets to TMI.
The revenues of these companies were flat in recent years and “TM will likely share a similar fate,’’ it said.
Even Ericsson, the world’s largest maker of wireless networks, expects demand for wireless and fixed line telephone networks to remain flattish this year. This means that operators are not buying equipment for fixed line expansion.
Ericsson yesterday announced a 70% drop in its second quarter profit due to factors such as lower demand for phones (See page 10).
As for TMI, the analyst cautioned about TMI’s regional operations, particularly in politically unstable countries such as Sri Lanka and Bangladesh, as growth had been crimped.
Overpaying for regional expansion had also not gone down well, especially its recent acquisition of a 19% stake in Idea Cellular.
“We keep our 'reduce' rating on TMI as we see Celcom’s market share, and hence earnings, being threatened by DiGi,” the report said.
“For exposure, we like DiGi which we anticipate will continue to build its market share at the expense of its peers, post the launch of its broadband services.
“Underpinned by strong management, improving network coverage, quality and branding, DiGi is expected to record a decent earnings growth of 13% for financial year 2008. Likewise, dividend yields are above market average at 5.6%,” Affin said.
There is talk that the implementation of mobile number portability (MNP) may be further delayed. Nonetheless, it felt that DiGi would still be the winner in an MNP environment.
DiGi reported a 19% rise in net profit to RM298mil for the quarter ended June 30 from a year earlier. Revenue rose from RM1.05bil to RM1.19bil. Earnings per share was higher at 38.9 sen from 33.4 sen before.
For the first six months, net profit was up 18% to RM588mil from RM496mil previously. Revenue increased 14% from RM2.07bil to RM2.36bil.
DiGi said the higher earnings were led by higher traffic following the introduction of innovative services and offerings. It declared an interim dividend of 57 sen.
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Jul 22 2008, 09:26 PM
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