• Maintain BUY (TP: RM4.84). CelcomDigi (CDB)’s 3MFY24 core net profit of RM482mn (+50.2% YoY) was within ours and consensus expectations, accounting for 22.6% and 23.3% respectively. The group declared the first interim dividend of 3.5sen per ordinary share (vs 3.2sen in 3MFY23). It is worth noting that CDB experienced significant total subscriber growth, with healthy increases in Postpaid subscribers (+273K, +4.0% YoY) and Home & Fibre subscribers (+38K, +36% YoY), bringing its total subscriber base to 20.5mn (+174K YoY). 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. On a quarterly basis, CDB experienced a decline in revenue by -3.7% QoQ, in-line with lower contribution from service revenue (down by -2.4% QoQ) in the current quarter. Correspondingly, the group's net profit decreased by 4.9% QoQ, influenced by (i) reduced revenue from Prepaid due to the impact of the interconnect regulated rate reduction, one fewer calendar day, and decreased usage from a declining Prepaid subscriber base due to lower rotational one-time SIM acquisitions, as well as (ii) lower Postpaid revenue due to the interconnect reduction, lower roaming usage attributable to seasonal factors, and reduced bulk SMS revenue.

• Earnings Revision. No change to our forecast

• Outlook. In regards to the network integration, the largest component of the merger, the group expects the majority of synergies to arise from this process. CDB has made significant progress, having modernised over 7,200 sites, which represents about 44% of the entire network. Additionally, more than 2,700 co-located sites between the Digi and Celcom networks have been phased out. We believe that CDB's prospects are positive as these synergies materialise. Aside to that, we anticipate more meaningful contributions from 5G-related products in 2H24, supported by a better adoption rate.

Source: BIMB Securities Research - 29 May 2024