KUALA LUMPUR (Nov 19): CelcomDigi Bhd’s (KL:CDB) short-term outlook may be subdued following an underwhelming third-quarter, though analysts are cautiously betting that earnings will accelerate in 2025.
Net profit for the January-September period only accounted for about 70% of consensus’ full-year estimates, prompting one-third of the 24 research houses covering the stock to cut their forecasts and target prices. At least one downgraded the stock.
The “challenging” revenue growth outlook is expected to persist in the near-term and more time is needed “before a better cost structure can be seen”, MIDF Amanah Investment Bank said in a note on Tuesday.
The research house downgraded its rating on CelcomDigi to “neutral” and slashed its target price by more than 20% to RM3.53, noting that there was only a decline in depreciation and amortisation post-merger amid lower capital expenditure, “which is inadequate”.
Shares of CelcomDigi were mostly steady on Tuesday after losing nearly 15% of their value so far this year amid uncertainties over the 5G network rollout while investors watch for signs of material gains from its merger.
Analysts tracking CelcomDigi were divided, with 12 out of 24 research houses issuing “buy” calls. The remaining nine recommended “hold” while three assigned “sell” calls. The 12-month target price stood at RM4.03, implying a 20% upside from the current price of RM3.38, Bloomberg data showed.
The consensus now calls for net profit to grow 14% to RM1.76 billion for 2024 before picking up speed at 19% to RM2.1 billion for 2025.
Kenanga Investment Bank, meanwhile, cut its target price by some 31% to RM3.82, citing concerns about the evolving landscape of Malaysia’s 5G network rollout.
The expectation for a re-rating in mobile network operators no longer holds, the research house said. U Mobile’s surprise win to lead the country’s second 5G network “introduces uncertainty on timeline and outcomes,” Kenanga noted. “We will reassess our valuation when more clarity emerges,” it said.
On its part, CelcomDigi cut one of its key financial targets, after its net profit slipped in the third quarter as costs rose faster than revenue growth.
Net profit for the three months ended Sept 30, 2024 (3QFY2024) was RM437 million, down 4% from the same period in 2023. Year-on-year, total costs climbed 5% amid rising roaming cost, device subsidies, as well as 5G access and fibre expenses. Revenue, meanwhile, grew 0.7% to RM3.13 billion.
The company revised its full-year guidance, projecting service revenue to flat or decrease “slightly” compared to “low single-digit increase” previously. It also adjusted earnings before interest and tax growth outlook to a “low single-digit decrease”, from an earlier forecast of a “single-digit decrease”.
CelcomDigi declared a third interim dividend of 3.6 sen per share, the highest in the past four quarters, payable on Dec 23. This brings the year-to-date dividend payout to 10.6 sen per share, up from 9.7 sen in the same period last year.