We maintain our BUY call with an a lower DCF-derived fair value ofRM4.40/share vs. RM4.50/share previously (WACC: 7.3% & terminal growth: 2%). Our FV incorporates a 3% premium for a 4-star ESG rating and implies a FY24F EV/EBITDA of 9.8x, which is 0.5 standard deviation below its 2-year average of 11x.
CDB’s 1HFY24 core net profit (CNP) of RM898mil (excluding one-off severance cost of RM111mil in 1QFY24) was below expectations, coming in at 42% of our earlier full-year estimate and 45% of consensus’. Hence, we trim our FY24F earnings by 5% to account for a more conservative revenue growth of 1% (vs. 3% previously) on expectation that postpaid ARPU will remain under pressure.
CDB announced an interim dividend of 3.5 sen/share in 2QFY24, bringing cumulative DPS to 7.0sen/share for 1HFY24 (1HFY23: 6.4 sen/share). CDB is on track towards meeting our FY24F DPS of 14.0 sen/share.
CDB’s 1HFY24 core net profit (CNP) declined 14% to RM898mil from RM1bil in 1HFY23, which benefited from a large one-off writeback of RM345mil in accelerated depreciation of assets’ useful life.
Service revenue eased by 0.8% YoY to RM5.4bil in 1HFY24, dragged by lower contribution from postpaid (-1.1% YoY) and prepaid segments (-2.1% YoY). The fall in revenue can be attributed to higher churn rate, lower interconnection rates and reduced bulk messaging traffic.
Blended mobile average revenue per user (ARPU) slipped to RM40/month in 2QFY24 from RM41/month in 2QFY23 due to a 4.4% YoY decline in postpaid ARPU. This was attributed to cheaper entry-level plans from the ongoing pre-to- postpaid migration. Additionally, the launch of unlimited data package exacerbated the ARPU downtrend as increased data usage by consumers did not translate into additional revenue.
QoQ, 2QFY24 CNP dropped by 14% to RM416mil mainly due to higher tax (+86% QoQ) resulting from deferred tax liability adjustments of RM51mil, which was partially offset by a RM37mil Green Tax incentive.
Operating costs fell to RM978mil (-9% QoQ) in 2QFY24 from RM1.1bil in 1QFY24 due to lower staff costs (-37% QoQ) and depreciation costs (-2% QoQ). Staff costs declined in the absence of the voluntary separation scheme (VSS) cost, which was incurred in 1QFY24.
We view CDB’s prospects positively in the long term. The group has a competitive advantage given its substantive spectrum holdings of 125MHz (vs. Maxis’ 115Mhz). CDB is also expected to enjoy cost savings from a streamlined network and elimination of duplicated IT organisational costs.
Key downside risks are i) continuous service disruptions, which may impede subscriber retention rate, ii) regulatory risks from changes to 5G arrangements, and iii) higher-than-anticipated integration costs.
CDB is currently trading at an inexpensive FY25F EV/EBITDA 8.9x, which is below its 2-year average of 11x.
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