DiGi Q2 net profit falls

From The Business Times:

DiGi.COM Bhd (6947), the country's third largest mobile operator, says its second-quarter net profit fell 21.3 per cent to RM234.5 million due to higher cost of its third-generation (3G) rollout.

However, the group remains "cautiously optimistic" for the medium to long term, as it believes it can capitalise on the changing market dynamics and grow its existing businesses as well as tap new growth opportunities.

"We are actively managing our costs to meet shareholders' expectations on cashflow and yields. In tandem with that, we have solidified our value proposition to customers, focusing on relevant, easier and better deals in everything we do.

"I am convinced we have taken steps in the right direction to strengthen our long-term financial standing. We are already on track to meet our financial guidance of a higher operating cash flow than last year," said DiGi chief executive officer Johan Dennelind in a statement yesterday.

DiGi's revenue in the quarter ended June 30 2009 grew a marginal 1 per cent to RM1.2 billion due to lower usage by the low income segments amid the current economic slowdown.

The mobile phone operator also reported a 6 per cent drop in earnings before interest, tax, depreciation and amortisation (Ebitda) of RM521.5 million in the quarter from a year ago.

For the six months period, DiGi's net profit dropped 13.4 per cent to RM588.5 million from RM509.9 million before. Revenue for the same period grew by 3 per cent to RM2.42 billion, against RM2.36 billion a year ago.

"We are faced with challenges from the economic recession. We acknowledged revenue and margin pressures due to weakened customer spending, but we are responsive to customers' call for greater savings.

"Although the operating environment remains tough, we are holding up well versus competition," Dennelind said.

DiGi will pay an interim single-tier exempt dividend of 49 sen per share for the year ending December 2009 on 18 September 2009.

It now has 7.23 million customers, comprising 1.18 million postpaid users and 6.05 million prepaid users.

Data revenue, comprising of text messages, ringtone downloads and others, also declined in the second quarter compared to the first quarter this year.

Mobile data revenue fell by 5 per cent to RM233 million, against RM246 million in the first quarter.

Revenue from text messages declined by 6 per cent to RM157 million.

Mobile data revenue now contributes 19.6 per cent to the group's total revenue, against a 20.7 per cent contribution in the first quarter.

Looking at the article, the optimistic comments at the beginning soon turn to dust as soon as I read 1% revenue growth. Furthermore, Digi users are considered less affluent. People aren't trading down from more expensive plans, they are just cutting back on spending. 6% revenue decline in text messaging says it all. Texting is as cheap as one can get with mobile communications.

Digi is supposed to be somewhat of a growth-like company and the revenue is not very growth-like. Overall, this is a horrible earnings report for the company, but just as bad for Malaysia's economy as people are cutting back on expenditures.