Digi dips in 2015, hit in migrant worker space?

  • Significant shift in market conditions, intense prepaid price competition
  • Despite revenue and earnings dip, managed to grow subscriber base
Digi dips in 2015, hit in migrant worker space?

DIGI.COM Bhd, Malaysia’s third largest mobile operator, reported a decline in net profit and revenue for both its fourth quarter and full year ended Dec 31, 2015, and this looks to have been caused by a hit in its migrant worker segment.
The full year results were below the expectations of some analysts. Digi posted a 1.5% decline in revenue to RM6.91 billion, while net profit declined by a whopping 15% to RM1.7 billion. [RM1 = US$0.23]
For the fourth quarter, net profit fell 31% to RM382.36 million, while revenue declined 3.9% to RM1.72 billion.
However, the company’s service revenue (which does not include revenue derived from sales of mobile devices) showed a marginal 0.2% growth to RM6.35 billion, versus RM6.33 billion in 2014.
“There was a significant shift in market conditions, with intense price competition on prepaid,” Digi said in a presentation on Feb 5.
Digi, which is generally considered as having a dominant hold on the migrant worker segment, did not disclose any information on to this segment, such as subscriber base or revenue. In fact, most mobile operators do not reveal such details.
In contrast, a day before Digi released its results, Maxis announced that its fourth quarter net profit jumped by 38% to RM468 million and revenue rose 2.5% to RM2.18 billion. Full year revenue increased by 2.5% to RM8.6 billion while full year net profit rose marginally (0.9%) to RM1.96 billion.
Interestingly, Maxis attributed its higher services revenue growth of 3.8% to its prepaid segment, which in turn was driven by more people using data-related services, as well as its higher share in the migrant worker market.
Flattish growth in 2016
Digi’s full year revenue and earnings were slightly below some analysts’ expectations.
AmResearch telecommunications analyst Alex Goh had estimated Digi’s full year revenue and earnings would be around RM7.19 billion and RM1.84 billion, respectively.
Alliance Research and UOB Kay Hian had expected full year revenue to be in the RM7.01-7.05 billion range, and net profit to be at RM1.85 billion.
In other words, the full year numbers of these analysts were about 6% off the mark.
Like Maxis, Digi is also expecting a rather flattish year. Both companies expect 2016 service revenue, EBITDA (Earnings Before Interest, Depreciation and Amortisation) and capital expenditure to be at similar levels to 2015.
A good year, nevertheless
While some of its financial numbers do not pay a rosy picture for Digi, the year was not a write-off for the company, especially given the impact of the Goods and Services Tax (GST) which rolled out last April.
Mixed messages from the Government on the GST on prepaid cards had resulted in market confusion.
At one point, dealers who were selling the prepaid packs by charging the 6% GST ended up on the bad books of consumers, but those who were selling packs without charging GST ended up on the bad books of the authorities.
This affected all mobile operators, not just Digi.
“The impact was quite dramatic. We saw some dealers giving up and closing shop. I think that has impacted at least one full quarter,” U Mobile chief executive officer Wong Heang Tuck told Digital News Asia (DNA) last June.
LTE war
Digi dips in 2015, hit in migrant worker space?In 2015, Digi invested RM904 million on capital expenditure (capex), partly to grow its Fourth Generation/ Long-Term Evolution (4G LTE) network coverage.
As at Dec 31, 2015, its 4G LTE networks covered 65% of the population nationwide, supported by an expanded fibre network of 6,600 km. It had more than 2.3 million 4G LTE subscribers in hand.
Meanwhile, the company claimed that its 4G LTE-A network coverage (a term to describe an area with a ‘full bar’ of 4G cell signals) now blankets 28.8% of Malaysians. 
“We have kept focused on delivering a strong network and quality customer experience across the board,” said Digi chief executive officer Albern Murty (pic).
“In particular, we placed equal emphasis on expanding coverage and access to our network, and on the consistency and quality of our services.
“This made it significantly important to densify our network and overlay a large number of sites to dual band, 1,800MHz and 2,600MHz, to ensure customers experience high-speed Internet consistently with improved outdoor and indoor coverage wherever they are,” he said in a media statement.
In contrast, Maxis spent RM1.3 billion on capex in 2015, and its 4G LTE coverage is now available to over 70% of the population.
Subscriber base trend
Digi closed the year with 12.1 million subscribers, of which 7.5 million or 61.9% were Internet customers.
It managed to add 704,000 new customers during the year, comprising 585,000 prepaid customers and 119,000 postpaid customers.
Overall, it outperformed Maxis in terms of its subscriber base growth, as the latter registered a net loss of 219,000 subscribers to 12.69 million.
Related Stories:
Digi now claims the ‘widest 4G LTE network’ in Malaysia
Digi throws down the 4G LTE gauntlet: What it really means
Digi Q3 2015 revenue dips, Internet revenue surges 18%
Maxis ‘won’ 2015, says CEO Morten Lundal
Telco Deep Dive: MVNO Merchantrade and its ire at incumbents
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