CelcomDigi: Strategic Moves and Financial Outlook

In the latest financial report, CelcomDigi (CDB MK), a prominent mobile operator in Malaysia, has shown promising results amid a competitive market landscape. Maintaining a ‘Buy’ recommendation, the analyst sets a target price of RM4.50, reflecting a potential upside of 33.5% from its current share price of RM3.37. The company is well-positioned in the communication services sector, offering an extensive range of 2G, 3G, and 4G services.

Financial Performance

CelcomDigi reported a net profit of RM437 million in the third quarter of 2024, marking a 4% increase quarter-on-quarter but a 27% decline year-on-year. The nine-month net profit stands at RM1,344 million, aligning with the analyst’s expectations. Notably, the company anticipates higher cost synergy savings in the upcoming quarters, with management raising the gross synergy target to RM1.1-1.2 billion for 2024.

Key Financial Metrics

• Revenue for 3Q24 reached RM3,126.5 million, showing a modest 0.7% growth both quarter-on-quarter and year-on-year.
• EBITDA climbed to RM1,509 million, with a margin of 48.3%, indicating robust operational efficiencies.
• The forecast for 2024 includes a net dividend yield of 4.4%, increasing to 5.1% in 2025.

Subscriber Trends and Market Dynamics

In terms of subscriber dynamics, CelcomDigi’s postpaid segment exhibited growth, with net subscriber numbers rising by 92,000 quarter-on-quarter. However, the prepaid segment saw a decline, attributed to dual-SIM consolidation strategies. While average revenue per user (ARPU) experienced slight adjustments, the company remains focused on optimizing its service mix to drive future growth.

Merger Synergies and Strategic Initiatives

The company has successfully generated RM1 billion in gross synergy savings year-to-date, surpassing previous expectations. With network modernization efforts underway, including the integration of over 10,500 sites, CelcomDigi is on track to achieve significant operational efficiencies. The company is targeting higher synergies in the final quarter by minimizing integration costs.

Environmental, Social, and Governance (ESG) Initiatives

CelcomDigi is committed to sustainability, with initiatives such as developing a Net Zero 2050 roadmap and optimizing energy usage through advanced technologies. Socially, the company has achieved a 100% pass-rate in integrity assessments and actively participates in digital inclusion and entrepreneurship programs. Governance efforts include implementing a comprehensive Privacy Control Framework by 2024.

Valuation and Recommendation

The ‘Buy’ recommendation is underpinned by a discounted cash flow-based target price of RM4.50, reflecting the potential for enhanced synergies in 2025 post-integration. The stock trades at its mean EV/EBITDA of 10x, presenting an attractive investment opportunity for stakeholders.