CelcomDigi Bhd (CDB) reported a 32.7% QoQ increase in 3QFY23 net profit to RM455.7m, mainly due to lower operating expenses and depreciation charges. Revenue was flat as the decline in device sales was offset by higher wholesale revenue. After adjusting for non-operating items such as allowances on trade receivables, gain on disposal/write-off, fair value gain etc, 9MFY23 normalized net profit of RM1,155.3m came in below market expectation but within our forecast at 69% and 80% of full-year estimates, respectively. We make no changes to our earnings forecasts and maintain our Neutral rating on the stock. A third interim dividend of 3.3sen per share was declared (3QFY22: 3.4sen), bringing year to-date dividend for FY23F to 9.7sen per share.

• 3QFY23 revenue was marginally higher at +0.6% QoQ. Service revenue was flat as the drop in postpaid revenue was offset by higher prepaid and wholesale revenue. Postpaid subscriber base increased by 1.4% QoQ on lower ARPU, particularly Celcom which reported a decline of 3.7% QoQ. Meanwhile, the group’s prepaid customer base and ARPU was flat. Digi posted a 1.1% increase in subscriber base but this was offset by a 1% drop in Celcom’s customer base.

• Headline 3QFY23 profit after tax rose 32.7% QoQ, primarily due to lower sales and marketing cost (-15.3%) and operations & maintenance(-23.9%). In addition, depreciation cost was also lower, down 2.7%. After adjusting for non-operating items, 3QFY23 normalised net profit improved by 40% to RM488.1m. EBITDA margin increased by 3.1 ppts to 50.5%.

• Integration in progress. Almost a year since Celcom and Digi’s merger,the group has announced a new logo to signify its progress in becoming a single entity. Customers of both telcos are already able to be serviced at either Celcom or Digi physical stores, while more products will be introduced under the CelcomDigi brand in the near future, focusing on fibre and enterprise business. Progressively, migration of Celcom and Digi stores, websites and apps under the new brand will take place. The group intends to invest about RM100m in building the new brand.

Source: PublicInvest Research - 20 Nov 2023