• Upgrade to BUY (TP: RM4.84). CelcomDigi (CDB)’s 9MFY23 net profit of RM1,643mn (+12.8% YoY) was above ours and consensus expectations, accounting for 84.2% and 98.7% respectively. The deviation against our projection was primarily due to lower-than-expected tax and depreciation in the current quarter. The group declared a third interim dividend of 3.3 sen per ordinary share, bringing cumulative 9MFY23 DPS to 9.7 sen (9.0sen in 9MFY22). We maintain our FY23F DPS at 13sen, translating into a 3.1% DY. Following the improved bottom-line performance in 9MFY23, we raised our earnings estimate accordingly. Moving forward, we foresee a healthy subscriber growth, supported by the group's introduction of new attractive plans. We upgrade our call on CDB to BUY with a higher TP of RM4.84 (from RM4.55). Our valuation is derived based on DCF valuation with a WACC of 6.3% and a long-term growth of 2.0%.

• Key highlights. In 3QFY23, CDB’s revenue grew by +1.0% YoY, attributed to a higher number of subscribers, increasing by 636k to 20.6k. In tandem, the group’s net profit jumped by +25.4% YoY bolstered by higher revenue from prepaid (+1.9% YoY), wholesale & others (1.5% YoY) and home fibre business (+28.6% YoY). On a QoQ basis, net profit also grew by 13.5% QoQ due to a higher share of profits from an associate & joint venture, along with lower depreciation and taxation.

• Earnings Revision. We revised our FY23-25F earnings forecast higher by 4%/4%/3% respectively, to a net profit of RM2.04bn/RM2.09bn/ RM2.19bn (Table 2), as we tweaked our tax and depreciation assumptions for the respective fiscal year.

• Outlook. We maintain a positive outlook on CelcomDigi's long-term business prospects, supported by 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.

Source: BIMB Securities Research - 19 Nov 2023