Review

• After excluding the impact of accelerated depreciation from the revision in assets useful life and sites rationalisation, CelcomDigi’s FY23 core profit of RM2,150mn (+3.2% YoY) came in below ours but above consensus expectations, accounting for 93.0% and 145.6% of full-year forecasts, respectively. The variance was mainly due to higher-than-expected operating expenses. Meanwhile, consensus variance is possibly due to the varying treatment of the accelerated depreciation. 

• A 4th interim dividend of 3.5sen/share was declared, bringing the YTD dividend to 13.2sen/share. 

• YoY, FY23’s service revenue and EBITDA grew 0.4% and 3.3% to RM10,861mn and RM6,155mn respectively. The higher service revenue was mainly driven by higher revenue from the prepaid and home fibre segments, as well as the expansion of the subscriber base. Meanwhile, EBITDA was lifted by improving top-line, integration synergies, and cost optimisation efforts. As a result, EBITDA margin improved 0.9pp to 48.5%. Coupled with the absence of Cukai Makmur, core profit jumped 3.2% to RM2,150mn. 

• QoQ, 4QFY23’s service revenue remained resilient as it grew marginally by 0.9% to RM2,737mn thanks to higher contributions from all core segments, especially in postpaid and wholesale. Meanwhile, EBITDA also increased by 1.9% to RM1,597mn. 

• In 4QFY23, CelcomDigi’s total subscriber base dropped slightly to 20,552k from 20,600k (-48k QoQ), mainly due to the removal of nonrevenue generating subscribers from the prepaid segment. Nevertheless, the group still registered a total net add of 466k for FY23, largely thanks to the decent growth in the postpaid segment (+74k QoQ, +266k YoY).

Impact

• Maintain our FY24 and FY25 earnings forecasts. Meanwhile, we introduce the FY26 earnings forecast of RM2,818mn, representing an earnings growth of 4.9%.

Outlook

• FY24 Guidance Unveiled. For FY24, management guided that i) service revenue should increase by a low single-digit growth rate, ii) EBIT growth should be similar to 2023, and iii) CAPEX-to-total revenue ratio should be between 15% and 18%. 

• Merger Integration Still on Track. To recap, the merger of Celcom and Digi is expected to realise net NPV synergies worth RM8.0bn across network (RM5.5bn), IT (RM1.1bn), and others (RM1.4bn). Management will continue the journey of unlocking the synergies from the merger in 2024.
   
• In all, we maintain our Hold recommendation on CelcomDigi with an unchanged TP of RM4.60 based on 11.0x EV/EBITDA CY24F EBITDA.

Source: TA Research - 21 Feb 2024