CelcomDigi Bhd (CDB) reported an 8.1% QoQ increase in 2QFY23 net profit to RM343.5m, mainly due to lower operating and tax costs. Revenue was down 1.8% QoQ though this was offset by a drop in total cost, mainly device cost, regulatory compliance cost and depreciation charges. After adjusting for non-operating items such as allowances on trade receivables, gain on disposal/write-off, fair value gain etc, normalized net profit of RM667.5m came in below market expectation but within our forecast at 41% and 46% of full year estimates, respectively. We make no changes to our earnings forecasts and maintain our Neutral rating on the stock. A second interim dividend of 3.2sen per share was declared (2QFY22: 2.8sen), bringing a year-to-date dividend for FY23F to 6.4sen per share.

• 2QFY23 revenue was down 1.8% QoQ, mainly due to lower postpaid revenue and device sales. Postpaid revenue fell 1.2% as the segment was impacted by a full quarter’s reduction in interconnect rate and reduced bulk messaging traffic. This was partly offset by higher prepaid, wholesale and home fibre revenue. During the quarter, the group added 185,000 subscribers, expanding its customer base to 20.5m. However, ARPU was generally lower, albeit marginally.

• Headline 2QFY23 profit after tax rose 8.1% QoQ, primarily due to lower tax cost, which fell 13.7% QoQ. EBITDA margin remained relatively flat at 47.4%, as the decline in revenue was mitigated by lower operating cost such as device cost, USP fund and license fees. Meanwhile, depreciation cost was also lower, falling marginally by 2.2% QoQ.

• On-going integration project. Following the merger of Celcom Axiata and Digi in December 2022, CDB has started its full-scale integration and modernisation of networks involving almost 24,000 existing Celcom and Digi sites nationwide. This marks one of the largest telecommunication network deployment projects in Malaysia. The new network will unite the two existing networks, involving the upgrading of sites with the latest 4G and 5G-ready technologies. CDB will be partnering with Huawei Technologies and ZTE Corporation for the purchase of network services, solutions and equipment for this project.

Source: PublicInvest Research - 21 Aug 2023