• We attended CelcomDigi ESG Day 2024, which provided insights on the theme of "Trust in the Age of Digital-Everything."

• CDB's ESG initiatives take a holistic approach, encompassing (i) inclusive and digital access, (ii) a sustainable value chain, (iii) governance and performance culture, as well as (iv) environmental impact and action.

• We believe that CDB ESG initiatives enables the group to contribute on a global level to the United Nations Sustainable Development Goals (UN SDGs).

• We maintain our BUY call on CDB with an unchanged TP of RM4.84. Our valuation is derived based on DCF valuation with a WACC of 6.3% and a long-term growth of 2.0%.

Building an Inclusive, Sustainable and Trusted Digital Society

During the CelcomDigi ESG Day 2024 conference, CelcomDigi (CDB) shared that the group’s 5- year environmental, social, and governance (ESG) strategy is anchored on four foundational pillars. Given that CDB has the largest number of mobile subscribers (circa 20.5mn subscribers) in Malaysia, the group has a greater responsibility regarding the "S" component compared to other telco players. Based on our channel check, the group does not have a specific annual budget allocation for ESG initiatives. However, the group emphasizes that each pillar underscores the company’s holistic approach to integrating sustainability into its business operations, aligning with global best practices and driving long-term value creation. CDB’s four ESG pillar include:

1) Inclusive and Safe Digital Access – CDB’s efforts include training 50,000 individuals on digital skills and reaching 2mn people with “SAFE & SCAM” awareness programs. This focus on building digital literacy and ensuring cybersecurity which reflects CDB’s commitment to creating future-ready digital citizens and providing robust and secure digital infrastructure.

2) Sustainable Value Chain - The aim is to digitize supply chains, achieve a 90% annual close-out rate on non-conformities by 2025, and integrate mature ESG considerations in business partner evaluations. CDB’s proactive risk mapping, supplier training, and inspections highlight its rigorous supply chain risk management.

3) Governance and Performance Culture - CDB has achieved 100% completion of mandatory compliance modules and assessments, coupled with regular compliance audits. The emphasis on diversity, evidenced by inclusion in Bloomberg’s Gender Equality Index and maintaining diverse talent at all levels, positions CelcomDigi as a preferred employer and a leader in promoting an inclusive work environment.

4) Environmental Impact and Action – CDB’s ambitious environmental goals are centered on achieving Net Zero by 2050 with targets that aligned to the Science Based Targets initiative (SBTi). The company’s strategy includes converting its assets to solar panels and electrifying off-grid sites, demonstrate a clear commitment of the company to renewable energy. Notably, the mobile industry’s relatively low exposure to global emissions (c.0.4%) and the 10:1 enablement ratio of avoided emissions by mobile technologies, highlight CDB’s potential to drive significant environmental benefits beyond its immediate operations.

CelcomDigi's Tri-band UBR (Universal Baseband Radio) Technology to Achieve Power Savings

The world first Tri-band Radio Units are advanced technological solutions that leverage CDB’s existing spectrum and are further enhanced by new technologies that reduce site footprint, power consumption, and improve cost efficiency. The CelcomDigi Pilot Cluster Power Saving initiative (refer chart 5), conducted in collaboration with ZTE, aims to optimize network power consumption through advanced hardware and AI technologies. This project is divided into two phases. Phase I involves Tri-band UBR which simplifies the network by integrating multiple frequency bands (900MHz, 1800MHz, 2100MHz) (refer chart 2&3) into a single Tri-band UBR (refer chart 4), leading to a power consumption reduction of 5% to 10%. This advancement contribute to a cost reduction of by approximately 18% as compared to the previous equipment. This aligning with the group’s cost optimization efforts to mitigate the impacts of rising operational expenses. Phase II introduces AI-powered power saving, managing power usage based on traffic load, and achieving an additional power consumption reduction of 5% to 20%.

To Combat Digital Scams

It is worth to note that CDB recently launched its National Scam Awareness Survey 2024 report. The survey, which included 10,893 respondents, revealed that the majority were under 41 years old (73%), female (66%), had at least an SPM/MCE education (39%), earned below RM3,000 per month (70%), and struggled to cover their monthly expenses (63%). A panel session featured ACP Lai Lee Ching, Assistant Director of the Commercial Crime Investigations Department, Vijayadurai Singgatore, Manager at Bank Negara Malaysia BNMLINK, and Tham Seen Hau, Head of Operations at Malaysiakini. The speakers emphasized the urgent need to address digital scams through awareness and holistic actions. While technology is a useful tool, underlying factors must be addressed. They noted that current regulations are insufficient, as technology evolves rapidly and outpaces regulatory measures. Breaking the chain of scammers is crucial, and consulting with bank scam hotlines or the National Scam Response Centre (NSRC) at 997 is recommended.

Our View

All in all, we believe that CDB comprehensive ESG priorities reflect a well-rounded approach that enhances the company's reputation and stakeholder trust while mitigating risks and opening new opportunities for innovation and efficiency. Additionally, the launch of the CelcomDigi AI Experience Centre (AiX), an immersive innovation and collaboration hub, will enhance awareness within enterprise communities. Given that telco players cannot impose additional charges for 5G services on consumers, increased awareness and higher adoption of 5G technology among enterprises will be pivotal in driving CDB’s future earnings. As regulatory requirements and market expectations around ESG continue to evolve, CDB’s proactive stance and comprehensive strategies ensure it remains a leader in sustainable business practices, wellprepared to navigate future challenges and capitalize on emerging opportunities in the digital and green economies.

BUY with TP of RM4.84

We maintain our BUY call on CDB with an unchanged TP of RM4.84. Our valuation is derived based on DCF valuation with a WACC of 6.3% and a long-term growth of 2.0%. In regards to the network integration, the largest component of the merger, the group expects the majority of synergies to arise from this process. CDB has made significant progress, having modernised over 7,200 sites, which represents about 44% of the entire network. Additionally, more than 2,700 co-located sites between the Digi and Celcom networks have been phased out. We believe that CDB's prospects are positive as these synergies materialise. Aside to that, we anticipate more meaningful contributions from 5G-related products in 2025, supported by a better adoption rate.

Source: BIMB Securities Research - 18 Jul 2024