Merger synergies to drive CelcomDigi re-rating- RHB
PETALING JAYA: RHB Research expects CelcomDigi Bhd's stronger commercial execution and realisation of merger synergies to drive a re-rating of the stock, even as the group steps up investment in information technology (IT) system upgrades that will raise near-term costs.
Following an engagement with the group, RHB Research said it was guided that the bulk of CelcomDigi's financial year ending Dec 31, 2025 (FY25) capital expenditure estimated at RM1.8bil to RM2bil will go towards modernising its IT systems.
This, the research house said, is expected to lift operating expenditure (opex) in the short to medium term, largely due to new software licences.
'The higher opex and accelerated depreciation charges for network assets (expected to taper off in FY25-FY26) are baked into CelcomDigi's FY25 earning before interest and taxes guidance of a low-to mid-single digit growth which also factors in higher 5G wholesale charges,' it noted.
Nevertheless, RHB Research said CelcomDigi is committed to delivering steady-state pre-tax merger synergies of between RM700mil and RM800mil from FY27.
To reflect near-term integration cost and delayed savings, the research outfit adjusted its FY25 and FY26 earnings forecasts down by 6.9% and 8.8% respectively, but kept FY27 broadly intact.
Separately, RHB Research highlighted a slight delay in the network integration timeline from mid-2025 to the second half of the year (2H25), citing changes in Digital Nasional Bhd's (DNB) operating model.
The shift, it said, is impacting the remaining 25% of sites, or about 4,000 locations, yet to be integrated.
RHB Research said CelcomDigi expects the mobile network operators (MNOs) and shareholders to 'come to a landing' soon with DNB that would result in a revised wholesale framework.
This is as 5G traffic is expected to be shared with U Mobile, the second 5G infrastructure provider.
'While no discussion has taken place with the latter, CelcomDigi acknowledged that a fresh wholesale agreement inked going forward would be commercially-driven,' RHB Research said.
It said the current wholesale structure allows MNOs to exit their existing agreements within 30 days of an alternative 5G network becoming available, or before January 2028 with prior notice.
'This suggests the earliest an MNO could do so would be in 2H26, based on U Mobile's reported rollout timeline,' it said.
RHB Research also noted that CelcomDigi views current mobile pricing as suboptimal, given its scale.
'CelcomDigi believes the current mobile plans/pricing are not reflective of its position as the largest MNO by mobile revenue and sub market share, an area that it hopes to address over the medium term with the support of a vastly modernised network, integrated IT platforms, and distribution channels,' it noted.
'On enterprise, management views the lack of fibre assets as an impediment where it is prepared to further invest in the medium term.'
Overall, the research house has maintained its 'buy' call on CelcomDigi, raising its target price slightly to RM4.40 from RM4.30 a share.
'We see stronger commercial execution and realisation of merger synergies from the completion of CelcomDigi's network integration driving a re-rating of the stock,' it said, adding that valuation remains undemanding at 8.7 times FY26 enterprise value to earnings before interest, taxes, depreciation and amortisation.
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