CelcomDigi Bhd (CDB): Can the Company Overcome the Difficulties?

CelcomDigi Bhd is a telecommunications company operating in the Asia-Pacific region, providing mobile services, device sales, and other related services. As the mobile operator with the largest number of users in Malaysia, CDB serves a wide range of consumers and corporate customers through its extensive network and diversified service offerings.

According to the company's financial report, its revenue structure is very simple, consisting only of mobile communication service and related product revenue, and its business is only concentrated in Malaysia.

Source: Company financial report

According to the company's latest quarterly report released at the end of May, CDB net profit in Q1 2024 was approximately Rm376 million, an increase of 18% YoY, mainly due to the company's withdrawal of over-recognition of tax provision totalling Rm51.43 million in the quarter.

Revenue for the quarter slipped 0.8% yoy to RM3.15 billion from RM3.18 billion, as lower interconnect rate, reduced bulk messaging traffic and overall softer usagers dragged on service revenue, despite an enlarged subscriber base. In addition, the company has adopted unlimited data plans, which are mobile or internet service packages offered by telecommunications service providers that allow users to enjoy unlimited mobile data usage for a fixed monthly fee.

Also for this reason, the company's total number of users grew from 20.29 million in the first quarter of 2023 to 20.47 million, an increase of 0.9% yoy. But the average revenue per user (ARPU) decreased slightly from RM42 to RM40.

As of the first quarter, the company's adjusted EPS was approximately MYR 0.03, an increase of 18.45% year-on-year. On an annual basis, Wall Street predicts that the company's adjusted EPS for 2024, 2025, and 2026 will be MYR 0.17, MYR 0.19, and MYR 0.21, respectively. However, JPMorgan did not give a specific EPS forecast for the company, only giving a "neutral" rating in its latest research report. The positive and negative factors to consider are as follows:

1.User growth: CDB's postpaid subscribers increased by 1% month-on-month and 4% year-on-year, showing the company's steady growth in its user base.

2.Improved network quality: The company has promoted significant growth in consumer data usage by improving network quality, with monthly data consumption increasing by more than 15% year-on-year.

3.Growth in home and fiber users: Thanks to the increasing number of fixed-mobile convergence packages, the number of home and fiber users increased by 10% month-on-month and 35% year-on-year.

1.Servicerevenuesdecline of 1% yoy in 1Q24 compares to FY24 guidance for service revenues to grow by low single digit. There could be downside risks to guidance.

2.1Q24 postpaidARPUdecreased 3% qoq and 7% yoy while prepaid ARPU decreased 2% qoq and 1% yoy.

3.The increase in home and fiber subscriber numberis accompanied by 9% qoq and 11% yoy decreases in ARPU. This could suggest that CDB is subsidizing for subscriber growth.

4.1Q24 Staffexpensehas increased 44% qoq and 62% yoy as a result of ~RM140mn severance packages payout.

As of early June 2024, the company's dividend yield was 3.45%, which is in the middle of the MY market, but relatively low as a leading company in the telecommunications industry. However, looking back, the company has had a total of 69 dividends in its history, conducted quarterly, with a relatively stable dividend cycle of about RM0.033 per share and a dividend payout ratio of 100%. At the latest high-level meeting, CDB announced a quarterly dividend payment of 3.5 cents, providing investors with a certain cash flow return.

As the largest telecommunications operator in Malaysia, the recent performance of CDB has not been entirely satisfactory. Since the release of its financial report, the stock price has fallen by 7.95% from May 2nd.

The reduced revenue and EBITDA seem to indicate that there are some issues with the company's operations. Faced with an increasingly competitive environment, CDB needs to quickly adjust its strategic deployment.

Currently, the biggest challenge for the company is how to improve its customer acquisition capabilities without reducing revenue due to excessive promotional activities.