Review

• CelcomDigi’s 9MFY24 core profit of RM1,338.0mn (-18.6% YoY) was below ours but within consensus expectations, accounting for 62.9% and 74.5% of full-year forecasts, respectively. The variance was mainly due to lower-than-expected service revenue from the prepaid segment and higher-than-expected operating expenses.

• A third interim dividend of 3.6sen/share was declared, marking the highest interim dividend since the merger. This brought the year-to-date dividend to 10.6sen/share. (9MFY23: 9.7sen/share)

• YoY, 9MFY24’s service revenue and EBITDA dropped 0.6% and 6.7% to RM8,072mn and RM4,252mn respectively. The weaker service revenue was primarily attributed to lower revenue contributions from the prepaid segment as it was negatively impacted by the SIM consolidation. Meanwhile, EBITDA was dragged by higher operating costs as a result of higher integration costs and increased spending to support traffic growth.

• QoQ, 3QFY24’s service revenue fell marginally to RM2,689mn from RM2,695mn, while EBITDA jumped by 8.1% to RM1,509mn. The stronger EBITDA was largely driven by effective cost management, sourcing efficiencies, and synergy realisation.

• On the other hand, CelcomDigi’s total subscriber base expanded to 20,255k from 20,223k (+32k QoQ), largely due to higher postpaid subscribers.

Impact

• Following the weaker-than-expected results, we adjust our forecasts lower to reflect softer service revenue and higher operating expenses. Consequently, earnings forecasts for FY24/FY25/FY26 were reduced by 15.9%/8.2%/6.0%, respectively.

Outlook

• For FY24, management has revised its guidance for service revenue to be flat to slightly decreased, compared to the previous projection of a low single-digit increase. Meanwhile, the group will continue focusing on unlocking the synergies from the merger of Celcom and Digi.

• Pertaining to the outcome of Malaysia’s second 5G network, management revealed that the group is currently evaluating multiple viable options that can maximise benefits for all stakeholders.

Valuation & Recommendation

• After revising the earnings forecasts, we revised the target price from RM4.58 to RM4.22, based on 11.0x EV/EBITDA CY25F EBITDA and a 3% ESG premium. Maintain a Buy call on the stock.

Source: TA Research - 19 Nov 2024