CelcomDigi (CDB)’s 1Q23 core net profit was within ours but above consensus expectations, accounting 29.0% and 33.4% of full year estimates respectively. CDB recorded core net profit of RM579mn (>100%) respectively after excluding the effects of accelerated depreciation (non-cash items). We remain upbeat on CDB’s long term business prospects given its positive long term outlook and synergistic benefits post-merger deal. Maintain a HOLD call on CDB with DCF-derived TP of RM4.44.

• Within expectations. 1Q23 core net profit of RM579mn (QoQ: >100%, YoY: >100%) was in line with ours but above consensus expectations accounting 29.0% and 33.4% of full year forecast respectively.

• Dividend. The group declared a first interim tax exempt (single-tier) dividend of 3.2 sen (versus 2.9 sen in 1QFY22). The current dividend is equivalent to a yield of 0.7% based on current market price. We estimate total FYE23 DPS of 16 sen, translating into a yield of 3.6%

• QoQ. CDB’s 1Q23 revenue and core net profit surged by 45.8% QoQ and >100% QoQ. Note that 4Q22 only included 1 month contribution and both comparative quarters were impacted by significant merger transaction costs and accounting alignment adjustments pursuant to the merger. It is worth to note that the CDB experienced a notable growth in subscribers in the current quarter, with an addition of 206,000, resulting in a larger base of 20.3mn.

• YoY/ YTD. Top-line and bottom-line increased by >100% YoY for both. Note that there was nil contribution of Celcom's results in 1Q22. CDB earnings in 1Q23 were also boosted by an increase in sales of newly launched smartphone models. Additionally, total subscriber base grew by 594,000 or 3.0%, contributing to the overall performance. Despite these positive factors, the blended ARPU remained steady at RM42.

• Outlook. We remain upbeat on Digi’s long term business prospects given its positive long term outlook and synergistic benefits post-merger deal. However, in the near term we opine that CelcomDigi’s form may be capped by the group’s integration efforts which may require significant resources. In regards to the group’s 5G development, we believe that the group is looking for a fresh discussion with DNB. We are positive on the 2nd 5G network as this will break the monopolistic model in local telco industries and led to lower fee cost. Note that CDB has onboarded 4,381 sites with 5G network and 2.8m 5G provisioned users, of which 11% are active users. Aside to that, the management guided the group FY23 headline KPIs (i) service revenue to maintain its growth momentum, (ii) EBITDA growth of flat to low single digit and (iii) capex-to-total revenue ratio of around 15% to 18%.

• Forecast: Unchanged

• Our call. Maintain HOLD call on CelcomDigi with DCF-derived TP of RM4.44. Our valuation is derived based on DCF valuation with a WACC of 6.3% and a long-term growth of 2.0%.

Source: BIMB Securities Research - 25 May 2023