Wednesday September 14, 2011
DiGi shares decline on service tax deferment
By SHARIDAN M. ALI
PETALING JAYA: The share price of DiGi.Com Bhd sank by 58 sen or 1.83% to RM31.12 yesterday after the announcement that telecommunications companies (telcos) have agreed to defer the 6% service tax for prepaid users.
DiGi has the highest number of prepaid users among its subscribers.
Prepaid customers of DiGi were reported to account for 82% of total subscribers, while for Maxis and Celcom it was 75% and 77% respectively.
DiGi shares rallied late last week to reach more than a 10-year high at RM32 on Sept 9 from RM31.12 on Sept 7 which could be due to two major corporate exercises.
On Sept 8, DiGi said it would distribute to its shareholders about RM509mil that it would receive from wholly owned unit DiGi Telecommunications Sdn Bhd, as part of a capital management initiative.
On the same day, it also proposed a share split, where each existing share would be split into 10. The exercise is to be completed by the end of the year.
The deferment of the service tax has poured cold water on telcos which announced last Thursday that they would impose the tax by Sept 15.
This was in response to the Prime Minister's advice and a subsequent request and a meeting with the Information, Communications and Culture Minstry. The deferment was influenced by strong public outcry and the current economic conditions.
Historically, telcos have absorbed the levy on behalf of customers. At present, it is the only service where tax is subsidised by the companies, and not paid for by the customers.
RHB Research said while the development was negative for the sector, it was just a deferment and not a scrapping of the telcos' plan to pass on the tax to customers.
“Unfortunately, for now, there is no clarity on the length of deferment. Nonetheless, we understand from the telcos' point of view, they collectively do not wish to absorb the tax any further,” it said in a sector update report yesterday.
RHB Research discounted the upside potential of the 6% service tax as it is uncertain how long the deferment would be.
“As a result, we have lowered our financial year 2011 earnings per-share (EPS) forecast for DiGi, Maxis and Axiata by 5%, 3% and 2% respectively.
“We have also reduced our financial 2012 and 2013 EPS forecasts for DiGi, Maxis and Axiata by 12%, 8% and 6% respectively,” said RHB Research, which has downgraded the sector to “neutral” from “overweight.”