CelcomDigi (CDB)'s 1H23 core net profit was in line with our estimates but exceeded consensus expectations, representing 53.5% and 63.8% of the full-year estimates, respectively. CDB recorded a core net profit of RM1,044mn (+6.5% YoY) after excluding the effects of accelerated depreciation (non-cash items). We maintain a positive outlook on CDB's long-term business prospects, given its favourable long-term outlook and the synergistic benefits post-merger deal. Maintain a HOLD call on CDB with new DCF-derived TP of RM4.55 (from RM4.44 previously).

• Within expectations. 1H23 core net profit of RM1,044mn (YoY: 6.5%) was in line with ours but above consensus expectations, accounting for 53.5% and 63.8% of full year forecast respectively.

• Dividend. The group declared a second interim dividend of 3.2 sen, bringing cumulative 1HFY23 DPS to 6.4 sen (versus 5.7sen in 1HFY23). This corresponds to a yield of 1.5% based on current market price. We estimate a total FY23 DPS of 16 sen, translating into a yield of 3.7%

• QoQ. CDB’s 1Q23 revenue edged down by 1.8% QoQ while core earnings increased by 1.7% QoQ due to lower taxation as the previous quarter was impacted by a reversal of tax credits. It is worth to note that CDB experienced significant subscriber growth in the current quarter, with an addition of 185,000, resulting in a larger base of 20.5mn.

• YoY. Top-line and bottom-line increased by 1.3% YoY and 9.6% YoY respectively. The Home Fibre segment maintained its growth trajectory during the quarter, driven by strong adoption of the newly introduced high-value CelcomDigi Fibre plans in 1Q23. This led to substantial growth in both revenue and the number of subscribers.

• YTD. As for 1HFY23, CDB registered better revenue and earnings of RM6,303mn (2.8% YoY) and RM1,044mn (6.5% YoY) respectively. 1HFY23 EBITDA rose by 1.8% YoY as operating expenses remained steady due to the reduction in regulatory compliance and management service expenses, which offset the increased costs associated with network and IT to accommodate the growth in traffic.

• Outlook. We maintain a positive outlook on Digi's long-term business prospects, given its favourable long-term outlook and the synergistic benefits post-merger deal. However, in the near term, we opine that CelcomDigi's growth may be constrained by the group's integration efforts, which could require significant resources. Regarding the group's 5G development, we believe that the company is seeking fresh discussions with DNB. We hold a positive view on the second 5G network, as the introduction of DNB has the potential to disrupt the monopolistic structure within the local telecommunications sector, ultimately leading to reduced fee costs.

• Forecast: Unchanged

• Our call. We raised our TP to RM4.55 (from RM4.44 previously) as we roll forward our valuation base year to FY24F (from FY23F). Our valuation is derived based on DCF valuation with a WACC of 6.3% and a long-term growth of 2.0%. Maintain HOLD call on CelcomDigi.

Source: BIMB Securities Research - 21 Aug 2023