PETALING JAYA: Depreciation and amortisation (D&A) expenses is expected to remain above RM3bil in financial year 2025 (FY25) for CelcomDigi Bhd as a result of the elevated capital expenditure in FY24.
CGS International (CGSI) Research said a shift towards information technology systems in FY24 led to a higher depreciation rate and as a result the research house had cut FY25/FY26 net profit estimates by 26.3%/18.9% respectively.
The telecommunication group’s management at its fourth quarter 2024 results briefing guided for FY25 earnings before interest and tax to grow by “low to mid-single digits”.
This is well below its previous estimate of 45% year-on-year (y-o-y) expansion, which assumed merger costs would ease further.
More importantly, D&A expenses would normalise at RM2.7bil in FY25 as accelerated depreciation linked to the merger of Celcom and Digi’s networks falls off.
The research house said while it expected CelcomDigi to post 25% FY24 to FY27 earnings per share compounded annual growth rate, it is of the view that valuation of 24.8 times FY25 price earnings ratio is already reflective of this recovery.
An FY25 dividend yield of 3.8% provides downside support, in its view.
The research house downgraded its call from “add” to “hold” with a reduced target price (TP) of RM4 a share from RM4.50 a share, following its net profit estimate reductions.
The key upside or downside risks cited are stronger or weaker-than-expected revenue growth as a result of CelcomDigi’s new information technology system upgrades, leading to stronger or weaker-than-expected net profits and cashflows.
CGSI Research’s current estimates assumed CelcomDigi would build the first 5G network, operated by Digital Nasional Bhd.
Meanwhile, Kenanga Research maintained its FY25 profit numbers with an “outperform” call and TP of RM4.10 a share.
It expected a better FY25 as depreciation costs ease, reflecting a leaner asset base following major post-merger impairment exercises in FY23 to FY24.
CelcomDigi closed at RM3.50 a share at yesterday’s trading.
