Digi.Com Berhad

Digi.Com Berhad is one of the four major telecommunication companies in Malaysia. It is also a subsidiary of Telenor Group, a Norwegian multinational telecommunications company, making it the only foreign owned telco among the four major players in Malaysia.

STOCK INFORMATION

TICKER SYMBOL: 6947.KL
MARKET CAP: RM 36.5 Billion (Updated 19th Nov 2015)
MARKET PRICE PER SHARE: RM 5.11 (Updated 19th Nov 2015)
INDUSTRY: Telecommunication

THE BUSINESS

The business of Digi.Com is fairly similar. It provides mobile telecommunications services for consumers in Malaysia. It charges customers through a prepaid and postpaid models. It generates revenue mainly from these four segments:

  1. Device sales
  2. Voice
  3. Internet
  4. Messaging
  5. Valued Added Services (VAS)

The company serves about 11.4 million subscribers as at the end of 2014. Currently its 3G and LTE services cover 86% and 32% of the country’s population.

KEY OPPORTUNITIES

Digi.Com Bhd has been focusing on making internet a core service for its customers. Over the past five years, it has seen the internet segment becoming more significant to its overall revenue. In term of its blended average revenue per user (ARPU), internet services has increased its contribution from just 9.6% in FY2010 to 27.7% in FY2014.

Within a year, Digi.com saw its smartphone users on its network raised from 38% in FY2013 to 49.3% in FY2014. As the smartphone penetration in Malaysia increases, the growth in its internet services should benefit as well.

Device sales is also a key point of growth for the company. With more smartphones and tablets available on the market, contribution from device sales has dramatically improved over the past 5 years. From RM1.1 billion from device sales in FY2010, Digi.com ended FY2014 with a device sales figure of RM2.5 billion, that is a 17% annual growth over the 5-year period.

KEY RISKS

Although the company has consistently been growing its revenue and profits, it is not without risks. Over the past few years, its ARPU has been declining. This comes as mobile users move from using traditional services such as voice and messaging to simply relying on applications on their smartphone for these feature. Therefore, much of the growth in its internet segment is offset by the drop in revenue in both the voice and messaging segments. Voice contribution in the ARPU has declined from 71% in FY2010 to just 61.7% in FY2014. Messaging contribution fell more severely, from 16% to just 8.5% over the same period.

If Digi.com, and other telecommunication companies, are not able to find new ways to generate revenue from their users, they might face structural decline in their business model over the longer term.

Top 3 Shareholders (As at 31th Dec 2014)
  1. Telenor ASA: 49.00%
  2. Employees Provident Fund Board Malaysia: 13.31%
Financial Statements

Digi Bhd Balance Sheet

Digi Bhd Income Statement

Source: Morningstar


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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned.

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