Investment Highlights

• We maintain our BUY call with an a lower DCF-derived fair value of RM4.40/share vs. RM4.50/share previously (WACC: 7.3% & terminal growth: 2%). Our FV incorporates a 3% premium for a 4-star ESG rating and implies a FY24F EV/EBITDA of 9.8x, which is 0.5 standard deviation below its 2-year average of 11x.

• CDB’s 1HFY24 core net profit (CNP) of RM898mil (excluding one-off severance cost of RM111mil in 1QFY24) was below expectations, coming in at 42% of our earlier full-year estimate and 45% of consensus’. Hence, we trim our FY24F earnings by 5% to account for a more conservative revenue growth of 1% (vs. 3% previously) on expectation that postpaid ARPU will remain under pressure.

• CDB announced an interim dividend of 3.5 sen/share in 2QFY24, bringing cumulative DPS to 7.0sen/share for 1HFY24 (1HFY23: 6.4 sen/share). CDB is on track towards meeting our FY24F DPS of 14.0 sen/share.

• CDB’s 1HFY24 core net profit (CNP) declined 14% to RM898mil from RM1bil in 1HFY23, which benefited from a large one-off writeback of RM345mil in accelerated depreciation of assets’ useful life.

• Service revenue eased by 0.8% YoY to RM5.4bil in 1HFY24, dragged by lower contribution from postpaid (-1.1% YoY) and prepaid segments (-2.1% YoY). The fall in revenue can be attributed to higher churn rate, lower interconnection rates and reduced bulk messaging traffic.

• Blended mobile average revenue per user (ARPU) slipped to RM40/month in 2QFY24 from RM41/month in 2QFY23 due to a 4.4% YoY decline in postpaid ARPU. This was attributed to cheaper entry-level plans from the ongoing pre-to- postpaid migration. Additionally, the launch of unlimited data package exacerbated the ARPU downtrend as increased data usage by consumers did not translate into additional revenue.

• QoQ, 2QFY24 CNP dropped by 14% to RM416mil mainly due to higher tax (+86% QoQ) resulting from deferred tax liability adjustments of RM51mil, which was partially offset by a RM37mil Green Tax incentive.

• Operating costs fell to RM978mil (-9% QoQ) in 2QFY24 from RM1.1bil in 1QFY24 due to lower staff costs (-37% QoQ) and depreciation costs (-2% QoQ). Staff costs declined in the absence of the voluntary separation scheme (VSS) cost, which was incurred in 1QFY24.

• We view CDB’s prospects positively in the long term. The group has a competitive advantage given its substantive spectrum holdings of 125MHz (vs. Maxis’ 115Mhz). CDB is also expected to enjoy cost savings from a streamlined network and elimination of duplicated IT organisational costs.

• Key downside risks are i) continuous service disruptions, which may impede subscriber retention rate, ii) regulatory risks from changes to 5G arrangements, and iii) higher-than-anticipated integration costs.

• CDB is currently trading at an inexpensive FY25F EV/EBITDA 8.9x, which is below its 2-year average of 11x.

Source: AmInvest Research - 19 Aug 2024