• NEUTRAL, new MYR4.32 TP (DCF) from MYR3.72, 1% downside. FY22 results (DiGi.Com standalone) were in line. Celcom’s 4Q22 PAT contribution (one month) was masked by integration costs and related one- off expenses. We see progressive realisation of merger synergies over the next three years, offsetting core EPS decline of 4-29% for FY23-24F. Downside risks: Merger execution, competition, and regulatory setbacks. Key upside risk is a stronger/swifter realisation of merger synergies. Our TP incorporates a 6% ESG premium.

• In line. 4Q22 core earnings (Digi standalone) rose 19% QoQ as lower tax expenses offset weaker service EBITDA margin from merger-related expenses (MYR161m). Stripping this out, MYR990m core earnings (-11% YoY) were at parity to our forecast (consensus: 95%). Inclusion of Celcom (1-month contribution in Dec 2022) saw a 37%, 34%, and 28% uplift in Digi’s 4Q22 service revenue, EBITDA, and core earnings, with overall service revenue (including wholesale) up 37% QoQ (FY22: +8% YoY). A final 3.1sen/share puts FY22 DPS at 12.2 sen/share (normalised 120% payout) – slightly below our/consensus’ expectations of 13 sen/share.

• Integration cost and accounting adjustments of MYR325m impacted 4Q22 earnings relative to Celcom’s PAT contribution of MYR79m (one month) in 4Q22. Excluding this, core earnings would have grown 29% QoQ (+43% YoY) with adjusted PAT up 5.2% to MYR1.2bn.

• Mobile service revenue (MSR) rose 0.5% QoQ (including Celcom: +34% QoQ)/-0.2% YoY) from a rebound in prepaid revenue (3Q22 low base) and stronger subs growth. Postpaid ARPU grew 2% YoY from increased roaming activities and seasonality. This compares with Maxis’ (MAXIS MK, NEUTRAL, TP: MYR4.03) 1.4% QoQ MSR growth. Including Celcom, postpaid revenue surged 34% QoQ/+37% YoY, with the benefit of stronger enterprise traction. Post merger, mobile subs base of 20.3m (4Q22) translates into a MSR and subs share of c.60% and 63% (Big-3 telcos).

• Merger updates. Management expects high integration-related opex and capex in FY23-24F with capex/sales guidance of 15-18% for FY23F (FY22: 12.1%). We note that its network integration’s request for proposal (RFP) is being finalised. Digi aims to decommission c.7,000 sites (of the combined 23,000 nationwide) for longer-term opex/capex savings (MYR8bn 5-year net NPV synergies). The narrative is for a progressive dividend payout, with a more definitive policy to be unveiled. We lift FY23-24F core earnings by 2- 5% after incorporating Celcom’s numbers post merger (integration and 5G wholesale cost reflected) with FY25F forecasts introduced. With shareholder consent obtained at last Friday’s EGM, CelcomDigi will assume the new listco corporate name.

Source: RHB Research - 27 Feb 2023