• Maintain BUY (TP: RM4.84). CelcomDigi (CDB)’s FY23 net profit of RM2,150mn (>100% YoY) was within ours but above consensus expectations, accounting for 105% and 146% respectively. The group declared a fourth interim dividend of 3.5 sen per ordinary share, bringing cumulative FY23 DPS to 13.2 sen (12.2sen in FY22). It is worth to note that CDB experienced significant total subscriber growth, adding 466K new subscribers YoY in FY23, primarily driven by increased adoption of enhanced product offerings. We maintain our BUY call on CDB with an unchanged TP of RM4.84. Our valuation is derived based on DCF valuation with a WACC of 6.3% and a long-term growth of 2.0%.

• Key highlights. In the 4Q23, CDB experienced a slight decline in revenue by -0.9% YoY, primarily due to softer device sales in the current quarter. Correspondingly, the group's net profit decreased by +13.4% YoY, influenced by reduced revenue from prepaid (-0.2% YoY) and postpaid (- 1.7% YoY) services. However, on a QoQ basis, net profit increased by 5.5% QoQ, driven by higher device sales and Service Revenue.

• Earnings Revision. No change to our forecast.

• Outlook. In term of integration process, we do note that CDB has completed 35% of its network integration and modernisation target as well as introduced more than 50 product campaigns including unified 5G offerings. Hence we foresee more meaningful contribution from 5G-related products in 2H24, which will be supported by better adoption rate. Regarding 5G development, the details of the 5G Dual Network transition remain uncertain. Given their crucial roles as major players in the telecom sector, especially with a significant number of mobile subscribers, we assert that CelcomDigi is better suited for Entity A. As the largest mobile network operator with a substantial subscriber base, it's wise to mitigate any risks associated with the transition from Entity A to Entity B by excluding CelcomDigi.

Source: BIMB Securities Research - 21 Feb 2024