• Maintain HOLD on CelcomDigi (CDB) with an unchanged DCF-derived fair value (FV) of RM4.40/share (WACC: 7.4% & terminal growth: 2%). This implies an 11x EV/EBITDA, slightly below its 2-year average of 12x to reflect the downside risk of higher-thanexpected integration costs and service disruptions during the network integration exercise. Our FV also reflects a 3% premium attributed to its 4-star ESG rating.

• We retain our forecasts as CDB’s 1HFY23 results were largely in line with our expectation but above consensus. CDB’s 1HFY23 normalised PATAMI (excluding accelerated depreciation from revision of the group’s assets useful life and site rationalisation) of RM1,041mil (+6% YoY) accounts for 52% of the full-year estimate, but 64% of consensus.

• This is likely due to street’s more conservative assumptions for Digital Nasional’s 5G wholesale charge, which amounted to only RM15mil in 1HFY23. We understand that this is currently being charged on actual usage vs. the contracted annual minimum charge of RM288mil, based on 800 gigabytes/second (GBps) at RM30k/GBps each month.

• The flattish 2QFY23 earnings of RM523mil were supported by lower net interest (-4%) and effective tax charge (-4.6%-point) amid stable service revenue. Operationally, the group’s total subscribers grew by an impressive 185K QoQ driven by prepaid (+133K) and postpaid (+46K) segments, while blended average mobile revenue per user remained at RM41/month.

• CDB maintains expectations to realise a gross synergy of RM200mil-RM250mil, which could be mostly offset by an integration cost of RM200mil in FY23F. This will be a part of the group’s net NPV synergy target of RM8bil from the Celcom-Digi merger.

• We believe the current FY24F EV/EBITDA of 10.7x (12% discount to 2-year average) is reasonable, reflecting risks posed by potential frequent service disruptions while expected integration synergies could take longer or may not be able to materialise completely.

Source: AmInvest Research - 21 Aug 2023