CelcomDigi Bhd (CDB) reported a 1QFY23 net profit of RM317.9m, which incorporated a full quarter of Celcom’s results. After stripping out non-operating items, core net profit was broadly within expectations. For a meaningful comparison, assuming the Celcom merger was completed on 1 January 2022 and merger transaction cost was excluded (Table 2), 1QFY23 profit after tax was down 35.7% YoY due to accelerated depreciation from revision in asset useful life and sites rationalization. We cut our FY23-25F earnings forecasts by 8-12% as we factor in higher depreciation cost. We value CDB based on 9x EV/EBITDA to derive our TP of RM3.80. Maintain Neutral. A first interim dividend of 3.2sen per share was declared (1QFY22: 2.9sen).
- Based on a comparable analysis, 1QFY23 revenue rose 4.3% YoY. This was mainly due to higher device sales of newly launched smartphone models as well as higher subscriber base which grew 3% on a stable blended ARPU of RM42. Service revenue improved marginally by ~1% YoY as the increase in contribution from prepaid, postpaid and home fibre business was partially offset by lower revenue from wholesale & others.
- 1QFY23 profit after tax was 35.7% lower, impacted by accelerated depreciation from revision in asset useful life and sites rationalization. Total cost was also higher (+5% YoY) in line with the higher device sales whilst operating expenses were lower from a more prudent cost management.
- Outlook. Following the annoucement of the formation of a second 5G network provider as early as next year, CDB terminated its share subscription agreement with Digital Nasional Bhd (DNB). This is understandable as CDB, being the largest telco in the country, should be keen to play a more direct and active role in 5G rollout. We believe it is likely to be appointed the second 5G operator after DNB. Meanwhile, post-merger, we note that there are synergies to be reaped in terms of sharing of resources, network optimization and better economies of scale that could amount to RM8bn over the next 3-3.5 years. However, an estimated integration cost of ~RM200m is expected to be incurred in FY23F.
Source: PublicInvest Research - 25 May 2023