CelcomDigi Bhd (CDB) reported a 4.1% decline in 3QFY24 net profit to RM437m, mainly due to higher material cost and tax expense. For 9MFY24, results were in line with consensus but came in below our expectation at 67% of our full-year forecast due to higher-than-expected increase in material cost. We cut our FY24-26F earnings forecasts by an average of 6% to factor in higher material cost. Our TP is revised to RM4.00 based on 9x EV/EBITDA. While its share price has fallen by about 12% in recent months, which we attribute to its unsuccessful bid in rolling out the second 5G network, we remain cautious on the cost of 5G access and its impact on CDB's profitability going forward. Hence, despite its attractive valuation, we maintain our Neutral rating pending further clarity on a more sustainable 5G rollout plan. A third interim dividend of 3.60sen per share was declared, bringing the year to-date dividend to 10.60sen per share (9MFY23: 9.70sen per share).

• 3QFY24 revenue was flat at RM3.1bn. Total revenue improved marginally by 0.7%, as the increase from the Home & Fibre segment was offset by lower prepaid as well as interconnect revenue due to regulated rate reductions. Total subscribers dropped by 1.7% YoY to 20.3m while blended ARPU increased by 2.5% YoY to RM41.
• 3QFY24 headline net profit fell 4.1% YoY, as a result of an increase in total cost while revenue remained flattish. Total cost rose 5.2% YoY due to a 13.6% jump in material cost from higher roaming charges, 5G access fees as well as fibre-related expenses. EBITDA margin reduced by 2.2 ppts to 48.3%. In addition, effective tax rate increased to 27.4% from 19.8% as 3QFY23 has benefitted from the reversal of an over-provision of deferred tax liabilities.
• Outlook. The group has completed 68% of its nationwide network integration and modernisation programme, while aiming to reach 75% by end 2024. This is ahead of schedule as the group had earlier targeted to achieve 40% in 2024. In this process, over 3,500 redundant sites were phased out and some 10,000 sites were modernised. The group now has the widest network of 18,000 sites in total. Following its unsuccessful bid to roll out the second 5G network, CDB will be in discussion with various stakeholders to consider other viable options to meet its aspiration to provide affordable 5G network to its customers.

Source: PublicInvest Research - 19 Nov 2024