CelcomDigi Bhd’s 1HFY23 result exceeded expectations at the back of network cost synergies and higher service revenues at the prepaid and home segments, according to Kenanga Research.
“Its higher service revenues at the prepaid and home segments more than offset weaker postpaid revenue while its QFY23 EBITDA margin
soared to 51% on lower operations and maintenance (O&M) and depreciation costs,” it said in its Results Note today (Nov 20).
Kenanga maintains OUTPERFORM call raises its FY23F and FY24F earnings forecasts by 14% and 12%, respectively to reflect lower regulatory fees and O&M costs.
“Correspondingly, we raise our TP by 5% to RM5.34, from RM5.07, based on an unchanged at 12 times FY24F EV/EBITDA, which reflects a discount to the sector’s historical average of 13 times.
“The discount is to reflect regulatory uncertainty surrounding the implementation of the new Dual Wholesale Network (DWN) model. There is no adjustment to our TP based on ESG given a 3- star rating as appraised by us,” it said.
The research house said that the group’s 9MFY23 core net profit of RM1.1 billion trumped its expectation at 87% of its full-year forecast but disappointed the market at 68% of the full-year consensus estimate.
“The variance against our forecast came mainly from lower-than-expected O&M costs and regulatory fees (as mentioned),” it said.
CelcomDigi, Kenanga said, declared DPS of 3.3 sen in 3QFY23, which is in-line with its expectation, and brings cumulative YTD DPS to 9.7 sen (9MFY22: 9 sen).
Post-briefing, it said that the group maintained its earnings guidance of flat-to-low single-digit EBITDA growth (YTD: +3%) and 15% to 18% capex-to-revenue ratio (YTD: 8%), the latter in which the group expect to accelerate in 4QFY23.
“The group also maintained its guidance for gross merger synergies of RM200 million to RM250 million (YTD: RM98 million) and integration cost of RM200 million (YTD: RM60 million).
“Based on the company’s assertion that both targets remain on track YTD, this implies significant catch-up in 4QFY23,” it said.
It also noted that CelcomDigi achieved enterprise revenue growth of 1.5% YTD emanating from the SME segment, ICT and connectivity solutions, which aligned with its strategy to accelerate 5G monetization.
“Out of the 74% CDB subscribers that have provisioned (activated) their 5G devices, merely 11% are active users. In our view, this suggests sluggish take-up and awareness of 5G services at this juncture,” it said.
It added: “We like CelcomDigi for merger synergies are expected to amount to net present value (NPV) of RM8 billion over 5 years – emanating from network at RM5.5 billion, IT at RM1.1 billion and others at RM1.4 billion.
“(Aside from that), the group’s robust FCF yield of more than 7% which implies capacity to pay steady dividends, and its leading subscriber base share of 39% and 20% in the postpaid and prepaid segments, respectively.”
The risks to Kenanga’s call include slower than expected realization of merger synergies, unfavourable outcome to the implementation of the dual wholesale network by the government, and competition between telco players turn irrational.
