Review

• After excluding the one-off severance packages of RM139.0mn and other exceptional items, CelcomDigi’s 1QFY24 core profit of RM482.0mn (- 6.9% YoY) came in below ours but within consensus expectations, accounting for 19.5% and 23.3% of full-year forecasts, respectively. The variance was mainly due to higher-than-expected operating expenses.

• The group declared a 1st interim dividend of 3.5sen (1QFY23: 3.2sen).

• YoY, 1QFY24’s service revenue and EBITDA fell 1.1% and 12.0% to RM2,672mn and RM1,330mn respectively. The weaker service revenue was mainly due to lower contribution from both prepaid and postpaid segments, which were impacted by the lower interconnect rate, lower bulk messaging traffic, and overall softer usages. Meanwhile, EBITDA was hit by higher cost of sales and the expenses incurred from the voluntary separation scheme. As a result, EBITDA margin decreased 5.3pp to 42.2%.

• QoQ, 1QFY24’s service revenue dropped 2.4% to RM2,672mn while EBITDA fell by 16.7% to RM1,330mn. The weaker performance was largely due to lower revenue contributions from all core segments as well as the expenses incurred from the voluntary separation scheme.

• In 1QFY24, CelcomDigi’s total subscriber base dropped slightly to 20,466k from 20,552k (-86k QoQ). Meanwhile, the group suffered from ARPU dilution in both postpaid (-3.0% QoQ to RM64) and fibre (-9.7% QoQ to RM112), mainly due to intense competition.

Impact

• Following the weaker-than-expected results, adjustments are made to reflect lower ARPU assumptions. Consequently, earnings forecasts for FY24/FY25/FY26 were cut by 4.6%/3.1%/1.2%, respectively.

Outlook

• For FY24, management maintains the guidance for service revenue to grow by low single digits. Meanwhile, the group will continue focusing on unlocking the synergies from the merger of Celcom and Digi. For FY24, the group is targeting to realise gross synergy of about RM700mn.

Valuation & Recommendation

• After revising the earnings forecasts and rolling forward our valuation base year to CY25, we revised the target price from RM4.60 to RM4.64, based on 11.0x EV/EBITDA CY25F EBITDA. Upgrade the stock from Hold to Buy following the recent weakness in share price.

Source: TA Research - 29 May 2024