This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

A year after the completion of the merger between Celcom Axiata Bhd and Digi Telecommunications Sdn Bhd to create an entity serving more than 20 million customers in Malaysia, the merged CelcomDigi Bhd is deriving further benefits from the marriage between the two equally significant former rivals.

CelcomDigi, which took over the listing status of Digi.Com Bhd — The Edge Billion Ringgit Club (BRC) Company of the Year in 2013 and winner of the highest number of BRC corporate award trophies over the years — is on the BRC winners’ list this year.

Since 2013, Digi.Com has been taking home the BRC sectoral award for highest return on equity (ROE) over three years — making this year its 11th-straight win. For seven years between 2016 and 2022, Digi.Com also took home the award for highest ROE over three years in the BRC “Big Cap” category, for Bursa Malaysia-listed companies with a market capitalisation of between RM10 billion and RM40 billion.

Thanks to the merger completed on Nov 30, 2022, the merged entity’s market cap surged above the RM40 billion mark, putting CelcomDigi in the BRC’s “Super Big Cap” group and bagging the company the award for highest ROE over three years in this category for the first time this year.

Although CelcomDigi’s weighted ROE fell to 9.1% for the financial year ended Dec 31, 2022 (FY2022) post-merger, its exceptionally higher ROE of 187.6% in FY2021 and 192.9% in FY2020 had brought its adjusted weighted ROE to 99.4% over the BRC awards’ evaluation period — allowing the company to once again win the BRC highest ROE over three years award in the telecommunications and media sector.

“The year 2022 was truly a momentous one for us. Amid macroeconomic and competitive pressures, we delivered a solid performance, continued to drive the nation’s recovery post-pandemic, and culminated an extraordinary year with the completion of the merger between Celcom and Digi,” CelcomDigi CEO Datuk Idham Nawawi wrote in the group’s 2022 annual report.

“Celcom and Digi started 2022 as two separate companies and ended the year as a new, unified and stronger CelcomDigi,” he added.

The group maintained its 100% dividend payout for FY2022, paying RM1.07 billion or 12.2 sen per share dividend in FY2022.

For the first half of the year (1HFY2023), CelcomDigi paid out 6.4 sen in dividends, despite its net profit being 31.7% lower year on year at RM669 million, from RM980 million in 1HFY2022, based on comparable results with the inclusion of Celcom’s performances.

Earnings came under pressure due to accelerated depreciation after the revision of the useful life of its assets and site rationalisation, even though the group’s revenue grew 2.8% to RM6.3 billion for 1HFY2023, from RM6.13 billion in the previous corresponding period.

With the merger now done and dusted, the research fraternity is looking forward to the materialisation of synergistic benefits arising from the combined strength of the two entities — Celcom with its wide network coverage and Digi’s operational efficiency and advanced back-end systems — to improve overall customer experience while maintaining market dominance.

Idham also said in August that the group has successfully completed the integration of about 2,000 network sites, of the 5,000 sites targeted for integration this year.

CelcomDigi’s integration process will involve the streamlining of 25,000 sites pre-merger to about 18,000 sites as part of ongoing efforts to realise synergies worth some RM8 billion over five years.

In a Sept 18 note, CGS-CIMB Research said CelcomDigi’s profits are likely to double through FY2025 thanks to the group’s cost management, which is expected to result in lower costs in various segments than previously anticipated.

“While we did tone down our revenue estimates (largely on lower average revenue per user projections), the cost adjustments more than made up for the impact of lower revenue estimates.

“We have also reduced our merger-related cost estimates to factor in management’s guidance, as reiterated during the 2QFY2023 results announcement,” the research house said, maintaining its “add” rating with a higher target price of RM5.18 versus RM5 previously.

Maybank Investment Bank Research reckoned that CelcomDigi’s performance for 1HFY2023 shows it remains on track in realising synergy from the merger.

“CelcomDigi’s investment thesis revolves mainly around the merger synergies — which are significant but back-loaded due to initial integration costs,” said the investment bank, which kept a “hold” rating and target price of RM4.60 in its Aug 21 research note.

MIDF Research, which maintains a “buy” rating, raised its target price to RM4.97 from RM4.87, citing potential upside arising from lower integration costs, thanks to better-than-expected procurement synergies.

“Moving forward, we anticipate there should be no let-up in the group’s future performance with upside potential emanating from the procurement synergies,” it said in an Aug 21 note.

In a saturated market like Malaysia’s, CelcomDigi’s enhanced cost structure should come in handy in delivering the best shareholders’ interest while satisfying growing demand from customers. Those synergies, necessary to sustain good returns to shareholders, will also help it maintain its lead on the BRC winners list.

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