KUALA LUMPUR (Aug 19): Shares of CelcomDigi Bhd (KL:CDB) slipped on Monday in the third straight day of decline as another weaker-than-expected results prompted analysts to cut their forecasts and target prices.
CelcomDigi fell more than 4% or 16 sen to close at RM3.60, its lowest since August 7, 2024. At the closing price, the largest Malaysian mobile network operator by subscribers has a market capitalisation of RM42.23 billion. Trading volume totalled 6.21 million shares at the end of the day.
At least seven analysts cut their target prices ahead of a results briefing on Monday as net profit for the January-June period only accounts for about 40% of consensus full-year forecasts largely due to higher-than-expected operating expenses.
RHB Investment Bank (RHB IB) and MIDF Amanah Investment Bank flagged that investors may have overestimated the benefits from CelcomDigi’s merger synergies.
“Market expectations on merger synergies may be overly optimistic” and may only materialise in 2025, said RHB IB. The research house kept its ‘neutral’ call on the stock and maintained its earnings forecasts as well as target price ahead of the earnings call.
Over-optimism over merger synergies
CelcomDigi shares have fallen nearly 12% so far this year. The company had also missed expectations in the first quarter, underscoring the caution among analysts and investors over its prospects.
Out of 24 research houses covering CelcomDigi, there are 12 ‘buy’ ratings, 11 ‘hold’ calls and one ‘sell’ recommendation. The consensus 12-month target price is RM4.44, according to Bloomberg, implying a return potential of 19.4% from the current price.
“We have been overly optimistic on the group’s earnings potential in the early phase of the group’s transformation programme,” said MIDF. The “more realistic” earnings would be lower by 14.5%-25.6% for 2024-2026 after accounting for slower service revenue growth and lower profit margin, it noted.
The research house, nevertheless, maintained its ‘buy’ call on the stock, flagging that the current share price weakness has resulted in attractive enterprise valuations of under 10 times, which would be “a good entry point to accumulate”.
Last Friday, CelcomDigi announced that earnings before interest and tax are expected to decline single digit this year due to an ‘organisation adjustment’ that resulted in a one-time cost of RM140 million. The company previously guided for earnings before interest and tax to stay at a similar level to 2023.
Service revenue, however, is still on track for “low single-digit increase”, CelcomDigi said, blaming the 0.5% contraction in the first half of 2024 on a one-off rotational SIM acquisition and interconnect rate reduction as well as lower enterprise mobile subscribers and lower bulk text message revenue.
For the first half of FY2024, the group's cumulative net profit rose 18.3% to RM782.48 million from RM661.44 million in the previous January-June period. Six-month revenue fell to RM6.28 billion from RM6.30 billion.