Digi.Com Bhd has retained its position as the company with the highest return on equity (ROE) over three years in the telecommunications and media segment of The Edge Billion Ringgit Club (BRC).
Despite the challenges brought about by the Covid-19 pandemic, investors still enjoyed decent returns from Digi.Com. The telco did not stop sending its shareholders dividend cheques every quarter in 2019 and 2020. The dividend declared was in the range of 3.6 to five sen each quarter.
Digi.Com has been a long-time winner in this category since The Edge BRC was introduced in 2010.
But the group’s ROE has been trending downward over the past three years in tandem with its earnings pattern.
Digi.Com reported a 14.8% decline in its financial year 2020 (FY2020) net profit to RM1.22 billion, its second consecutive year of contraction after the 7% fall recorded in FY2019, translating into a compound annual growth rate (CAGR) of -7.5%.
The drop in net profit was due to the Covid-19 headwinds in 2020, as well as higher depreciation and amortisation due to Malaysian Financial Reporting Standard (MFRS) 16 adjustments and the recognition of asset retirement obligations.
Its earnings before interest, taxes, depreciation and amortisation (Ebitda) remained steady at RM3.08 billion in FY2020, growing 1.5% from the RM3.03 billion it recorded in FY2017, while its Ebitda margin has breached the 50% mark to 51.44% for FY2020, from 46.5% in FY2018.
Revenue, however, has been declining over the period under review, to RM6.15 billion in FY2020 from RM6.53 billion in FY2018. In its FY2020 annual report, the group attributed the softening to sustained pressure on consumer and business spending.
Still, the telco achieved three-digit ROE — 258.5% in 2018, 215% in 2019 and 192.9% in 2020. This translates into a weighted ROE over three years of 212.7%.
The returns are decent, with most analysts recommending that investors hold on to their Digi.Com shares. There are 14 “hold” calls on the telco, four “buy” calls and four “sell” recommendations. Target prices on Digi.Com are between RM3.40 and RM6, based on Bloomberg data.
For the nine months ended Sept 30, 2021, the group reported a fall in its cumulative net profit to RM857.55 million from RM950.79 million a year earlier, although its revenue climbed to RM4.75 billion from RM4.59 billion.
The group aims to continue to execute its strategy of focusing on strengthening mobile offerings and digital services for its subscribers, adding that it remains highly committed to its efforts to support society’s recovery from the Covid-19 pandemic and to expand its mobile telecommunications network coverage in rural areas.
Meanwhile, the market is also closely following the proposed merger between Celcom Axiata Bhd and Digi Telecommunications Sdn Bhd.
The parties to the merger had concluded the due diligence exercise and signed the relevant agreements in June this year.
On Nov 24, the Malaysian Communications and Multimedia Commission (MCMC) received the proposal for a merger between Digi.Com’s unit Digi Telecommunications Sdn Bhd and Axiata Bhd’s unit Celcom Axiata Bhd.
On a pro forma basis, the merged entity will serve an estimated 19 million customers and have revenue of RM12.4 billion, pre-tax earnings of RM5.7 billion, profit after tax of RM1.9 billion and free cash flow of RM4 billion.
Axiata and Telenor will each hold equal stakes of 33.1% in the merged entity, which is expected to have a combined pre-synergy equity value of close to RM50 billion.
The merged company would be named Celcom Digi Bhd and continue to be listed on Bursa Malaysia.
In its latest quarterly financial report, the group indicated that the merger is progressing as planned, adding that the completion of the proposed transaction is subject to receipt of regulatory approvals, approval by all shareholders and other customary terms and conditions.
The group said the expected dates for approval and completion of the transaction within the second quarter of next year remain unchanged.