CelcomDigi Berhad - Picking up pace
Mon, 19-Aug-2024 08:23 am
by Steven Chong • Apex Research

Counter

CDB (6947)

Target Price (RM)

4.15

Recommendation

Buy

Summary

CDB reported 2QFY24 core net profit of RM422.1m (1QFY24: RM405.1m, 2QFY23: RM348.5m) and 1HFY24 CNP of RM827.2m (1HFY23: RM667.4m), was below our and consensus forecasts, accounting for 40% and 42% of forecasts respectively due to decline in prepaid revenue as actual prepaid subscribers in 1H24 was -6.2% lower than expectations.

As a result, we lowered our FY24-26 earnings by -5.8%/-2.6%/-1.4% respectively after taking into account stronger-than-anticipated competition within the prepaid market. 

Maintained our call to BUY with a lower TP of RM4.15 from RM4.19 previously based on WACC 6.9% and terminal growth of 0.5%.

 

Results Review

  • Results review. 2QFY24 core net profit recorded strong growth at +4.2% qoq and +23.9% yoy to RM422.1m. The higher yoy profit was driven by reduced depreciation charges and tax expenses, in tandem with the revision of asset useful life and the recognition of Green Tax Incentive. Revenue for the quarter, however, fell -0.5% qoq and -0.7% yoy as service revenue suffered from lower prepaid revenue that partially offset by growth in postpaid and fibre.

  • Below expectations. 6MFY24 core net profit of RM827.2m came below expectations, making up to 40% and 42% of both our and consensus forecasted net profit. The variance was mainly due to lower-than-expected prepaid revenue growth as actual prepaid subscribers in 1H24 was -6.2% lower than expectations.

  • Operations Highlights. In 2Q24, total subscriber base stood at 20.2m down -1.2% qoq from 20.5m. While postpaid subscriber base improved (+1.7% qoq, from 7.0m to 7.1m), prepaid subscriber has lagged behind (-2.8% qoq, from 13.3m to 12.9m) due to fewer promotional activities to attract new customers. ARPU for both postpaid (+1.6% qoq, RM64 to RM65) and prepaid (flat qoq to RM28) remained stable throughout the quarter. Concurrently, home fibre continues to show promising revenue growth supported by new additions in subscriber base (+12.4% qoq, from 145k to 163k), while ARPU slipped -2.4% qoq, from RM112 to RM107. 

  • Industry Highlights. All four telecom operators, except YTL, have submitted bids to develop the second 5G network. Presently, telcos lease access to the 5G network from DNB rather than owning 5G spectrum. However, once the successful bidder is announced, the winners will receive two 20MHz blocks (723MHz to 743MHz and 778MHz to 798MHz) for the 700MHz spectrum and a 100MHz block (3.5GHz to 3.6GHz) for the 3.5GHz spectrum. This will inevitably lead to increased capex spending, as the winner will need to invest in developing their own infrastructure moving forward.

  • Outlook. Retain 2024 outlook of i) low single digit growth in Service Revenue, ii) Flat growth in EBIT, iii) capex of 15%-18%. 

  • Valuation. Revised downwards our earnings forecast for FY24-FY26 by -5.8%/-2.6%/-1.4% respectively after adjusting our service revenue forecast. Re-iterate our BUY recommendation with a slightly lower target price of RM4.15 based on DCF valuation (WACC of 6.9% with a long-term growth rate of 0.5%).

  • Risk. Price slashing by competitors. Changes in government regulations. Higher-than-expected 5G capex affecting cashflow and dividend.

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