3QFY21 CNP of RM295m and DPS of 4.0 sen came within our estimates. While an increase in postpaid subs at the expense of ARPU is as expected, we were surprised by the increase in prepaid subs, driven by DIGI’s efforts to focus on its online- sales channels and at youth subscribers. Its subs base management and strategic decision to exit the high-churn low- end migrant segment should continue to drive prepaid subs retention and growth. We expect strong device sales to lift revenue in 4QFY21, but higher device costs to weigh on margins. We tweak our FY21E/FY22E CNP by 1% each on higher revenue (+4% each). Maintain MARKET PERFORM with unchanged TP of RM4.25, based on 10.5x EV/EBITDA on Celcom Digi Berhad’s FY22E EBITDA of RM6b.

9MFY21 within expectations. 9MFY21 revenue of RM4.8b came within our/street’s estimates at 79%/78%. 9MFY21 CNP of RM852m came within our/street’s forecasts at 73% each. 3QFY21 DPS of 4.0 sen brings 9MFY21 DPS to 11.0 sen, in line with our estimates.

YoY, revenue rose 3.5% mainly lifted by a higher device revenue (+46% YoY). Without device and other revenues, service revenue fell 1.4%, weighed by (i) a decline in prepaid subs (-8%), which outweighed the RM3/mth (+10%) prepaid ARPU gain and (ii) 6% decline in postpaid ARPU, which outweighed the 4% postpaid subs gain. Notably, the prepaid ARPU gain is a result of DIGI’s effort to attract and retain high quality prepaid subs. The higher device sales weighed on costs, and core EBITDA and net profits fell by 3% each.

QoQ, the lower device sales (-17%) weighed and brought revenue down by 2%. However, the underlying service revenue remained relatively flat at +0.2%. Postpaid subs continue to rise at the expense of ARPU, while prepaid subs are seeing an uptick for the first time for over a year, driven by DIGI’s strategic decision to exit the high-churn low-end migrant segment and more targeted marketing. The lower device sales lowered device costs and lifted core EBITDA and net profits by 3% each.

Moving forward, we expect continued postpaid subs growth driven by: (i) the Jaringan Prihatin government initiative and (ii) growth in device and fibre bundles. While we expect postpaid ARPU to further decline, we are expecting it to stabilize around RM60/mth. On the prepaid front, DIGI’s more targeted sales and marketing strategy, and their targeting of youths should allow it to continue driving prepaid subs growth. Moreover, the gradual reopening of borders and return of migrant subs should also boost DIGI’s prepaid subs. While DIGI’s prepaid subs base- management has allowed prepaid ARPU to recover, an increasing prepaid base of migrant subs may put downward pressure on prepaid ARPU. On the merger with Celcom, both parties are still seeking the necessary approvals and it’s expected to be completed in 2QCY22.

Post results and accounting for management’s guidance of a lower EBITDA decline, we raise FY21E/FY22E revenue by 4% each, and tweak CNP by +1% each. Accordingly, we tweak our FY21E DPS from 14.8 to 14.9 sen and FY22E DPS from 15.1 to 15.2 sen.

Maintain MARKET PERFORM on DCF-TP of RM4.25. The target price is based on a 10.5x forward EV/EBITDA on Celcom Digi Berhad’s FY22E EBITDA of RM6b. The estimates revision has an immaterial impact on CDB’s FY22E RM6b EBITDA.

Risks to our call include: (i) the proposed merger failing to obtain the necessary approvals, (ii) better/worse-than-expected service revenue, (iii) weaker/stronger-than-expected OPEX, and (iv) weaker/stronger- than-expected competition.

Source: Kenanga Research - 22 Oct 2021