Investment Highlights

• We maintain HOLD on CelcomDigi (CDB) with an unchanged DCF-derived fair value (FV) of RM4.40/share (WACC: 7.4% & terminal growth: 2%). Our fair value reflects a 3% premium for the group’s 4-star ESG rating and implies an EV/EBITDA of 11x, which is slightly below the 2-year average of 12x. The discount reflects the risk of higherthan-expected network costs and service disruptions in post-merger integration exercises.

• We maintain our earnings forecasts as the impact from price cuts in the home fibre segment is insignificant, given its 5-year average revenue contribution is less than 2% of CDB’s total service revenue.

• CDB has announced a price reduction in its home fibre plans, post-finalisation of the access agreement with Telekom Malaysia (TM), which is based on the new Mandatory Standard on Access Pricing (MSAP).

• For the most subscribed monthly plans (RM99 for 100Mbps and RM139 for 300Mbps), prices are now on par with Unifi’s new pricing (RM99 for 100Mbps and RM139 for 300Mbps). In addition, CDB is offering RM97/month for 300Mbps to postpaid customers, which is the lowest in the market. We reckon that this is part of CDB’s bundling strategy to retain and recruit new subscribers. While Maxis has not finalised its price reduction yet, we believe the price will be on par with other providers.

• We believe FY23F earnings contribution from home fibre remain unchanged given the reduction in average revenue per unit (ARPU) in the home fibre unit would be compensated by lower traffic charges. Also, we expect no change in postpaid ARPU as rebates for postpaid customers have been withdrawn, which will offset the impact of a pricing reduction.

• In addition to the price revisions, CDB has also inked an access agreement with Time. This will allow CDB to expand its home fibre subscriber base in high-rise buildings. CDB will also be able to improve the quality of its fibre services via Time’s symmetrical up/down-link speed and faster fibre installation.

• CDB is currently trading at 10.6x EV/EBITDA, which is 12% below the 2-year average of 12x. We believe that the discount is justified due to near-term risks resulting from higher-than-anticipated integration costs as synergies between Celcom and Digi may take longer-than-expected to materialise.

Source: AmInvest Research - 19 Oct 2023