CelcomDigi Bhd (CDB) reported a 19.5% YoY increase in 2QFY24 net profit to RM416m. Excluding non-operating items, 1HFY24 core net profit of RM831.2m came in slightly below our and consensus estimates, making up 44% of fullyear forecasts. The increase in net profit was mainly due to lower depreciation and tax costs. Depreciation charges were lower following the revision in asset useful life since 2023 as majority of the affected assets were fully depreciated. We make no changes to our earnings forecasts. Maintain Neutral on CDB with an unchanged TP of RM4.30. A second interim dividend of 3.50sen per share was declared, bringing the year to-date dividend to 7.0sen per share (1HFY23: 6.4sen per share).

• 2QFY24 revenue was flat at RM3.1bn. Service revenue, which accounted for 87% of total revenue, came in flat at RM2.7bn. This was mainly impacted by downward trend in subscriber base due to lower prepaid rotational one-time sim acquisition, enterprise mobile subscriber churn and interconnect revenue. However, the decline was partly cushioned by higher home & fibre growth. Total subscribers dropped by 1.2% YoY to 20.2m while blended ARPU remained unchanged at RM41.

• 2QFY24 headline net profit rose 19.5% YoY to RM416m. Total cost increased by 4.1% YoY mainly driven by higher cost of sales in line with higher roaming charges, leading to a 13.6% increase in material cost. As a result, EBITDA margin was lower at 44.9% compared to 47.4% in 2QFY23. Noticeably, depreciation charges improved by 16.3% YoY following the revision in asset useful life since 2023. Coupled with a 13.3% decline in tax cost, headline net profit rose by 19.5% YoY.

• Outlook. The group has completed 50% of its nationwide network integration and modernisation programme, while aiming to reach 75% by end 2024. This is ahead of schedule as the group had earlier targeted to achieve 40% in 2024. The process involves the consolidation of Celcom and Digi sites into a single network of 18,000 sites. The programme is a 3-year initiative as part of its post-merger transformation journey. Following this, CDB is seen as a preferred choice to build Malaysia’s second 5G network given its largest and most modern 5G-ready network in the country. The group has recently submitted a proposal for the deployment of second 5G network to the Malaysian Communications and Multimedia Commission.

Source: PublicInvest Research - 19 Aug 2024