After CelcomDigi announced its stellar Q2 results, the houses are mostly keeping their BUY recommendation with MIDF projecting a higher target price of RM4.97.
The group has maintained its growth momentum in 2QFY23 post the consolidation of Celcom and Digi towards the end of 2022. This surpassed expectations, making up 62% of our FY23 full-year earnings estimates. Moving forward, MIDF said it anticipates there should be no let-up in the group’s future performance with upside potential emanating from the procurement synergies.
CDB’s 2QFY23 normalised earnings came in at RM523m (+8.1%qoq). The house views that the improvement came from lower USP fund and license fees (-22.22.3%qoq) as well as a lower effective tax rate of 25.6%. Meanwhile, 2QFY23 revenue remained steady at RM2.7b. Note that assuming comparable basis results, 2QFY23 earnings translate into a growth of approximately 10%. Cumulatively, 1HFY23 earnings amounted to RM1,037m. On comparable basis results, this translates into a growth of approximately 6%yoy. All in, CDB’s 1HFY23 financial performance surpasses the house’s and consensus expectations, making up 62% and 64% of FY23 full-year earnings estimates respectively.
Service revenue remained steady at RM2,707m. The marginal decline in postpaid revenue was made up by higher revenue from the prepaid (+0.6%qoq), wholesale, and home fibre segments. Note that the postpaid revenue was impacted by interconnect rate reduction, lower on-demand services, and curbed messaging traffic.
Total cost declined by -1.6%qoq to RM1,643m which was mainly attributable to lower regulatory compliance cost. This was partly offset by higher network and IT costs as well as planned sales and marketing activities. Capex to intensify in 2H. CDB recorded 2QFY23 capex of RM252m, an increase of +133.3%qoq. This was mainly due to continued investments in network capacity upgrades and IT initiatives. In line with the ramping up of integration activities, 2HFY23 capex should increase at a much faster pace.
Higher dividend payout, a testament to CDB’s cash-generative capability. The group declared 2QFY23 dividend of
3.2sen which translates into a payout ratio of 109% which is above their dividend policy of at least 80% of net profit. This
was funded by the group’s healthy free cash flow (FCF). Note that FCF improved by +57.2%qoq to RM1,094m, underpinned
by working capital initiatives.
To account for the impact of accelerated depreciation, MIDF makes an upward revision in FY23 to FY24 earnings estimate to between RM2b and RM2.8b. This also led to a higher target price of RM4.97 (previously RM4.87) while the house maintains its valuation parameters.
