CelcomDigi Berhad - Earnings on Track, Depreciation Remains a Headwind
Fri, 14-Feb-2025 07:04 am
by Steven Chong • Apex Research

Counter

CDB (6947)

Target Price (RM)

4.000

Recommendation

Hold

Summary

  • CDB recorded 4QFY24 CNP of RM39.4m (-17.5% qoq, -35.9% yoy) bringing full year FY24 CNP to RM1.7bn (-0.03% yoy), was within our and consensus forecasts, accounting for 100% and 98% of forecasts respectively.

  • We tweaked downwards our earnings forecast for FY25 by -12.1% after adjusting for higher depreciation charges which stem from i) higher-than-expected CAPEX spending in FY24, coupled with ii) the ongoing reassessment of the useful life of legacy assets into FY25. 

  • Revised our call to HOLD (previously BUY) with unchanged TP of RM4.00 based on WACC 6.9% and terminal growth of 0.5%.

 

Results within expectations. FY24 CNP of RM1.7bn came well within both ours and consensus expectation, making up to 100% and 98% of forecasted CNP respectively. CNP was derived after stripping out one-off adjustments of RM174.4m (accelerated depreciation on ROU: RM112.7m, allowance for credit loss on receivables: RM157.8m and others: -RM95.3m)

 

YoY. 4QFY24 CNP dropped -35.9% yoy to RM369.4m, dragged by higher depreciation costs as well as additional 5G access expenses. Revenue for the quarter was flat at RM3.3bn with the prepaid segment experiencing subscriber losses due to CDB's earlier strategy of shifting focus away from dual SIM customers.

 

QoQ. CNP decreased by -17.5% qoq on the back of slight uptick in operational expenses. That said, revenue for the quarter climbed +4.8% qoq driven by growth across all segments except the prepaid segment.

 

Outlook. 2025 outlook guidance of i) low single digit growth in service revenue, and ii) low to mid-single digit in EBIT and iii) capex of 14%-16%. We note that depreciation costs spiked in 4QFY24 due to depreciation on legacy assets which arose from reassessment of useful life of network site assets as well as IT platforms, leading to a reduction in their expected lifespan. While these charges will gradually taper off by FY26 as legacy assets are phased out, total depreciation is expected to remain elevated similar to FY24, stem from increased CAPEX spending.

 

Earnings Revision. We tweaked downwards our earnings forecast for FY25 by -12.1% after adjusting for the higher depreciation charges.

 

Valuation. As the recent price appreciation has fully priced in CDB’s fair value, we revised our recommendation to HOLD (previously BUY) with unchanged target price of RM4.00 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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