KUALA LUMPUR: CGS-CIMB Securities remains positive on the completion of the Celcom-Digi (CDB) merger on Nov 30, 2022, as the firm believes management will be able to deliver on the substantial RM8 billion net present value of cost synergies (net of integration cost).
It said the bulk of this will be via network integration (RM5.5 billion), where 6,000-7,000 sites (out of a combined 23,900) are to be decommissioned by the end of the financial year 2023 (FY2023), while the remaining sites are to be integrated or optimised in the next 24-36 months.
Meanwhile, another RM1.1 billion/RM1.4 billion of cost synergies will be extracted from information technology (IT) integration and others.
“Over the longer run, CDB’s larger subscriber scale and balance sheet may put it in a stronger position to pursue partnerships and mergers and acquisitions, which could help it attract or retain subscribers, as well as expand into the home and enterprise markets.
“In addition, as the largest market cap telco in Malaysia, CDB could fall onto the radar of more investors,” CGS-CIMB said in a note today.
However, the research firm cautioned that service experience could worsen during network integration and lead to customer churn.
“However, we think this risk is manageable as CDB has set up dedicated teams to take care of the network/IT system integration exercise and will incorporate service level agreements into vendor contracts,” it said.
There may also be SIM card consolidation for some subscribers that use both the Celcom and Digi service, though CDB said this does not form a major part of its combined subscriber base.
Near-term subscriber acquisitions may also slow down as CDB rationalises its distribution channels and calibrates the two brands’ market positioning, it said.
As such, CGS-CIMB downgraded its call on the company to hold and cut its target price (TP) to RM4.15 from RM4.45, noting that its earnings forecast on CDB declined after taking into account the merger’s integration cost and synergies.
“With earnings contracting in FY2023 and dividend yields unattractive, we see limited re-rating catalysts in the near term,” it added. – BERNAMA
