PETALING JAYA: Following its proposed merger with Celcom Axiata Bhd which will be completed soon, Digi.Com Bhd will be well entrenched in the public sector and migrant worker space, commanding the dominant market share in the mobile market at 43%.
Kenanga Research stated it likes Digi based on its competitive pricing and attractive bundling to attract migrant and domestic customers; the rollout of 5G that will likely further boost its subscribers given the absence of Maxis Bhd
in this early stage of the rollout and the the superior margins of both Digi and Celcom at five to six percentage points above the industry average of 41% and 42%.
“Correspondingly, we raise our valuation of Celcom-Digi by 10% to RM4.69 on the account of higher earnings before interest, tax, depreciation and amortisation (up 7% due to lower 5G leasing charges),” Kenanga Research told clients in a report.
It said the key strength for CelcomDigi is its ability to tap into new growth areas and diverse communities given its in-depth and wider coverage.
“Celcom’s key points are its network capacity with wider coverage while Digi has in-depth coverage with an emphasis on urban areas.
“Celcom’s 4G and 4G+ cover 96% and 90% of the population respectively while Digi’s 4G and 4G+ are at 95% and 80%.
“Their combined 12,000 retail touchpoints and 500 branded outlets will be repurposed to support and strengthen the business,” Kenanga noted.
It also pointed out that the merged entity brings about 60 years of combined track record and scale.
“The entity will have stronger capacity to invest and drive digitalisation and innovation. It aims to be the largest Malaysian telco-tech company within five years and a top enviroment, social and governance or ESG performer in Malaysia.”
Kenanga Research also said it is rationalising its financial year 2022 (FY22) and FY23 earnings forecasts for Digi to reflect contributions from Celcom starting from December, a one-month impact in FY22 and a full-year impact in FY23.
“Other assumptions for FY23 are 5G access costs revised down by 46% to RM313mil (from RM576mil) on an incremental purchase based on a gradual nationwide rollout and Celcom’s post-paid average revenue per user (Arpu) is raised to 29% back to RM80 to reflect the still separated products and services. “Celcom’s prepaid Arpu is unchanged and so are Digi’s post and prepaid Arpu of RM30, RM62 and RM31, respectively, for FY23.”
On potential cuts in telco service prices mooted by the new government, Digi holds the view that telco services are already highly affordable currently, and the deterrence to subscription comes largely from the lack of coverage and poor network quality in certain remote areas, Kenanga said.
The research house has raised its target price by 10% to RM4.69 (from RM4.28) for Digi and maintained its “outperform” call on the company.
