CDB targets to achieve additional net synergies of RM280m in 2HFY24 (1HFY24: RM454m). This would raise its post-merger cumulative net synergies to RM980m by end-2024, putting it on track to achieve its target of RM8b in net present value from merger synergies. CDB also plans to create new revenue streams via offerings such as data-as-a- service and AI-as-a-service. We maintain our forecasts, TP of RM5.59 and OUTPERFORM call.

We came away from CDB’s 2QFY24 results briefing with renewed optimism, as merger synergies are progressing well. The key takeaways are as follows:-

1. Post-merger, CDB has achieved net synergies totalling RM700m, comprising savings for capex (RM566m) and opex (RM135m). The net synergies were derived from scale efficiency and capex avoidance, net of integration costs (ie. expenses for IT and retail store transformation, staff voluntary separation scheme etc).

2. Moving forward, CDB targets to achieve additional net synergies of RM280m in 2HFY24 (1HFY24: RM454m). This will emanate from savings derived from capex (RM90m) and opex (RM190m). Hence, this would raise its post-merger cumulative net synergies to RM980m by end-2024, enabling it to achieve its target of RM8b in net present value from merger synergies.

3. CDB has surpassed its target to achieve 50% progress on its network integration and modernization program. This is after having modernized and phased out more than 8,500 and 3,500 sites respectively. Therefore, the group has raised its target to reach 75% progress on this program by end-2024.

4. CDB plans to leverage on AI to achieve an AI-enabled organization that is data-driven and focused on analytics. In addition, it plans to create new revenue streams via offerings such as data-as-a-service and AI-as-a-service. By doing so, CDB aspires to be the preferred AI partner for its clients, whether they require support in a sandbox environment, a pilot project, or full-scale implementation.

5. If CDB is unsuccessful in its bid to develop Malaysia’s second 5G network, other options may be considered. One possibility is that CDB could continue as an access seeker by purchasing 5G wholesale capacity from Malaysia’s dual 5G networks.

Forecasts. Maintained.

Valuations. We also keep our TP of RM5.59 based on unchanged 12x FY25F EV/EBITDA. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 3).

Investment case. We like CDB for the following reasons: (i) merger synergies are expected to amount to NPV of RM8b over 5 years – emanating from network (RM5.5b), IT (RM1.1b) and others (RM1.4b), (ii) robust average FCF yield of 7.7% in FY24-25 implies capacity to pay steady dividends, and (iii) it is the largest mobile subscriber base in Malaysia, translating to economies of scale. Maintain OUTPERFORM.

Risks to our call include: (i) slower-than-expected realization of merg synergies, (ii) slow monetization of 5G from Malaysian enterprises, and ( competition between mobile players turn irrational.

Source: Kenanga Research - 20 Aug 2024