Comprehensive Analysis of CelcomDigi and Other Companies

Report by Maybank Investment Bank Berhad, November 19, 2024

Introduction

In the latest report by Maybank Investment Bank Berhad dated November 19, 2024, an in-depth analysis of CelcomDigi and other companies provides valuable insights into their financial performance, strategic initiatives, and market position. The report offers recommendations based on current evaluations and anticipates future trends in the telecommunications sector.

CelcomDigi: Awaiting Synergy Crystallisation

The analysis of CelcomDigi highlights a sequential uptick in earnings driven by cost tapering, aligning with expectations but slightly below consensus. Despite a MYR 437 million net profit in 3Q24, marking a 4% YoY decline, the incremental growth is evident with an 8% QoQ increase. The company declared a 3.6 sen dividend per share, maintaining a 100% payout ratio.

CelcomDigi’s service revenue saw a marginal decline of 0.2% QoQ and 0.8% YoY. However, the home fibre sector showed growth, partially offsetting declines in mobile and enterprise segments. The management’s focus on cost efficiencies led to a 3.2 percentage point increase in EBITDA margin, now at 48.4% for 3Q24.

Future prospects remain optimistic as network integration and modernization efforts are progressing faster than anticipated, with 70% completion reported in 3Q24. The anticipation of substantial merger synergies from FY25 onwards bolsters the ‘BUY’ recommendation, with a DCF-based target price of MYR 4.50.

Financial Metrics and Comparisons

CelcomDigi’s financial metrics indicate a robust performance across several parameters. The company achieved an EBITDA of MYR 5,964 million in FY24E, with a projected net profit growth of 1.8% for the same year. The core earnings per share are expected to witness substantial growth from 13.5 sen in FY24E to 20.2 sen in FY25E.

Revenue growth is estimated at 1.1% for FY24E, with EBITDA margins predicted to improve steadily from 46.5% to 55.5% by FY26E. The net dividend yield is forecasted to increase from 3.8% in FY24E to 6.8% in FY26E, reflecting a positive outlook on shareholder returns.

Market Position and Shareholder Dynamics

CelcomDigi maintains a leading position in Malaysia’s telecommunications market, supported by major shareholders like Axiata Group Bhd. and Telenor ASA. The company’s share price, currently at MYR 3.37, has shown fluctuations over the past year, with a 52-week high of MYR 4.41 and a low of MYR 3.26. The free float stands at 22.7%, with a market capitalization of MYR 39.5 billion.

The report indicates a strategic focus on enhancing enterprise transparency, with MYR 295 million in revenue from this segment for 3Q24. Despite a general decline in mobile and enterprise revenues, efforts in cost management have delivered improved margins.

Risks and Strategic Considerations

The report outlines potential risks, such as competitive pricing pressures and regulatory challenges related to spectrum fees and taxation. These factors could impact CelcomDigi’s profitability and market dynamics. The company’s proactive approach to addressing these challenges and leveraging merger synergies is central to its strategic outlook.

CelcomDigi’s financial health is supported by a strong balance sheet, with total assets of MYR 36,560 million projected for FY24E. The company maintains a disciplined approach to capital expenditure, with a capex-to-revenue ratio expected to decline from 16.4% in FY24E to 11.4% by FY26E.

Conclusion

Overall, CelcomDigi emerges as a resilient player in the telecommunications landscape, poised for growth through strategic synergies and operational efficiencies. The ‘BUY’ recommendation by Maybank Investment Bank Berhad underscores the company’s potential to deliver value to shareholders through improved profitability and robust dividend yields.