KUALA LUPUR: CIMB Equities Research has DiGi as its preferred Malaysian telecommunications company as it is a key beneficiary as the market heads closer to network parity.

It said on Tuesday it has lowered the discounted cashflow  (DCF) target price by 1.9% to RM5.20. This was after factoring in spectrum payments for 2600/2100MHz in FY17F/18F and lower capex. 

“While Digi’s FY17F EV/OpFCF (enterprise  value/operating free cashflow) of 18.2 times is pricey (Asean average: 15.2 times), it is supported by FY16-18F dividend yields of 4.3%-4.7% per annum. 

“Key upside/downside risks are better-than-expected postpaid traction/missing out on the 700MHz spectrum,” it said.

Commenting on the results, CIMB Research said Digi’s 4Q16 EBITDA eased 4.5% on-quarter (+5.6% on-year) on lower margins. Core net profit fell 6.6% on-quarter (+3.1% y on-year). For FY16, EBITDA/core EPS declined 0.9%/6.0% on-year on intense competition and higher traffic cost (weaker Ringgit). 

FY16 results were in line, as EBITDA/core EPS formed 100%/98% of our and consensus forecasts. DiGi declared a final 4.8 sen DPS, based on a 100% payout ratio (FY16: 20.9 sen).

“For FY17, DiGi is guiding for flat service revenue and EBITDA margin, with capex/sales at 11-13% (RM685mil to RM809mil),” it said.