FY22 core net profit of RM1.2bn (+9% YoY) was a beat. Declared forth DPS of 3.1 sen. YTD performance was lifted by Celcom’s one-month consolidation as well as strengths in Digi’s postpaid and fibre. FY23 guidance implied growth along with higher capex also for merger activities. Maintain HOLD with higher DCF derived TP of RM4.20. While waiting for more clarities on merger and 5G structure with DNB, dividend yield of 3% should sustain share price in the near term.

Exceeded expectations. 4Q22 core net profit of RM377m (+37% QoQ, +49% YoY) brought FY22’s to RM1,203m (+9% YoY) which beat expectations, accounting for 110% and 118% of HLIB and consensus full year forecast, respectively. The outperformance was attributable to stronger-than-expected top line. FY21 one off items include (i) accrual clean up net of tax (+RM5m); (ii) merger-related cost and tax penalty refund (+RM151m); (iii) merger accounting adjustment (+RM133m); non-recurring costs (+RM55m); finance cost adjustment (+RM9m); GAAP (-RM1m); consolidation adjustment (-RM2m); and (iii) Prosperity Tax (estimated to be +RM132m).

Dividend. Declared fourth interim tax-exempt (single-tier) DPS of 3.1 (4Q21: 3.9) sen and goes ex on 13 Mar. FY22 DPS amounted to 12.2 sen vs FY21’s 14.9 sen.

QoQ. Apart from consolidation of Celcom (only Dec), revenue was up by 42% as all products registered growth: postpaid (+1%), prepaid (+1%), fibre (+22%), digital (+6%) and devices (+41%). In turn, core net profit gained 37% thanks to Celcom one-month contribution.

YoY. Celcom’s contribution lifted top line by 38%. Digi standalone basis grew 3% as expansions from postapid (+3%), fibre (+175%), digital (+9%) and devices (+14%) were more than sufficient to offset the decline in prepaid (-3%). Bottom line added 49% attributable to Celcom’s consolidation.

YTD. For the same reason mentioned above, turnover and core earnings gained 7% and 9%, respectively. Digi on a standalone basis, the revenue growths from postpaid (+2%) and fibre (+300%) were more than sufficient to neutralize the contractions in prepaid (-5%), digital (-4%) and devices (-5%).

Postpaid 4Q22 revenue at RM859m (+34 QoQ, +37% YoY) attributable to stronger contribution from Enterprise business and effective bundling strategies for mobile segment.

Prepaid 4Q22 sales at RM806m (+34 QoQ, +29% YoY) due to positive traction on Digi’s voice and roaming usages alongside higher demand in Celcom’s monthly mobile internet

FY23 guidance. (1) Service revenue: maintaining growth momentum; (2) EBITDA to be flat to low single digit increase; and (3) capex/total revenue to be around 15% to 18% which will include all BAU planned investments and ongoing merger integration activities.

Forecast. Model was updated based on (i) the deviation mentioned above; (ii) latest guidance; and (iii) Celcom consolidation. In turn, FY23 -24 PATAMI projections were revised by +48% and +63%, respectively.

Maintain HOLD with a higher DCF-derived TP of RM4.20 (previously RM3.60) using WACC of 6.8% (previously 6.3%) and TG of 2% (previously 1%). While waiting for more clarities on merger and 5G structure with DNB, dividend yield of 3% should sustain share price in the near term.

Source: Hong Leong Investment Bank Research - 27 Feb 2023