KUALA LUMPUR (April 25): Despite intense competition in the telecommunications market, DiGi.Com Bhd has responded well to competition, recording positive net adds in the fourth quarter of financial year 2015 (4QFY15) to the first quarter of financial year 2016 (1QFY16), CIMB Investment Bank said today.

However, CIMB analyst Foong Choong Chen cautioned in a note today that the telco player's outlook remains challenging due to intense competition as Celcom Axiata Bhd strives to regain market share, while Maxis Bhd continues to expand in the migrant workers segment.

"DiGi recorded another quarter of healthy prepaid (an increase of 149,000) and postpaid (an increase of 62,000) net adds, driven by new promotions launched in 1QFY16," he said.

"Earnings before interest, tax, depreciation and amortisation (EBITDA) margin rebounded 1.9% points quarter-on-quarter (q-o-q) (a decrease of 0.7% points year-on-year (y-o-y)) to 42.6% in 1QFY16, from its 10-year low in 4QFY15," he added.

"However, market competition is likely to remain intense as Celcom strives to regain market share, while Maxis continues to expand in the migrant workers segment. TM-P1 also plans to launch its mobile service in the second half of 2016 (2H16)," he added.

Last Friday, DiGi recorded a 16.7% decline in net profit for the first quarter ended March 31, 2016 (1QFY16) to RM399.04 million from RM479.22 million a year earlier.

The decline in profitability was on the back of a 7.7% decline in revenue for the quarter to RM1.65 billion compared to the RM1.79 billion reported in 1QFY15.

The group saw service revenue falling 1.8% y-o-y to RM1.56 billion but this was offset by a 6.9% increase in postpaid service revenue.

However, the group had incurred higher depreciation and amortisation as well as higher finance costs which offset foreign exchange and derivatives gains of RM9.28 million, as opposed to a loss of RM6.09 million in the previous year.

DiGi declared a first interim dividend of 5.1 sen per share, payable on June 24.

Foong said DiGi's results were slightly below expectations as EBITDA was largely flat q-o-q in 1QFY16, with better margins offsetting lower revenue.

He also said on a y-o-y basis, EBITDA was down 9.1% due to intense market competition and weaker ringgit against the US dollar rate, adding that EBITDA and core net profit was slightly below the research firm's and consensus FY16 forecasts of 23%.

The research firm upgraded the stock to "hold" from "reduce" with lower FY16/FY17/FY18 core earnings per share by 5.8%/6.4%/8% (EBITDA by a decrease of 5.4%/5.8%/6.7%) to factor in lower revenue.

CIMB Investment Bank also lowered the stock's target price to RM4.60 from RM4.68.

At 10.29am, DiGi rose two sen or 0.43%to RM4.70 with 540,400 shares done.