CelcomDigi Bhd
Outperform. Target price: RM5.97
CELCOM’S
Q1'24 core net profit of RM534 million (+97% YoY) tracked expectations – coming in at 26% of our full-year forecast and the consensus estimate. CDB declared Q1'24 DPS of 3.5 sen (Q1’23: 3.2 sen), which was within our expectations.
Non-core exceptional items include chunky integration costs of RM156m (Q1’23: RM16 million). This was largely attributed to a one-off severance package amounting to RM139 million for CDB’s voluntary separation scheme (VSS) completed in Q1'24.
Softer mobile service revenues. Lower service revenue (-1.1% YoY) in Q1'24 fell short of CDB’s guidance of low-single-digit growth. This mainly emanates from: (i) lower interconnect rates (effective: Mar 2023), (ii) reduced bulk messaging traffic, and (iii) overall softer mobile usage. As such, this more than offset improved segmental revenues from: (i) home and fibrr: on the back of an enlarged subscriber base (net adds: 38k), and (ii) wholesale: due to higher traffic demand.
Bigger is indeed better. In spite of topline weakness, EBITDA inched up 1.3% YoY given improved economies of scale as merger synergies progressively unfold. On the back of this, and coupled with lower depreciation and taxes, Q1'24 core profit almost doubled YoY.
The reduction in depreciation charges was attributed to the revision in asset useful life since 2023 after the merger. Hence, the majority of the impacted assets were fully depreciated in Q1'24. Correspondingly, this was reflected in lower accelerated depreciation charges of RM30 million in Q1'24 which has significantly tapered off post-merger. Meanwhile, taxes were lower following the reversal of the over-recognition of tax provisions in prior periods.
We raise our TP by 2% to RM5.97 (from RM5.83) as we roll forward our valuation base year. Maintain OUTPERFORM.