KUALA LUMPUR (June 28): Shares in CelcomDigi Bhd (KL:CDB) snapped a six-day losing streak on Friday, as Maybank Investment Bank (Maybank IB) flagged improving risk-reward, and told investors to now buy the stock.

The stock closed 6.1% or 21 sen higher at RM3.68, valuing the country’s largest telecommunications company (telco) by subscribers at RM43.2 billion on Bursa Malaysia, with more than 11.4 million shares changing hands.

Maybank IB in a note on Friday upgraded the counter to ‘buy’ (from 'hold'), with an unchanged discounted cash flow-based target price of RM4.50, citing that CelcomDigi’s risk-reward profile had turned more favourable, as Malaysia’s second 5G network comes closer to fruition. 

Maybank IB joins a minority of seven out of 24 research houses covering the stock with ‘buy’ calls while the large majority of 16 research houses have ‘hold’ and one has ‘sell’ recommendation. The consensus’ 12-month target price is RM4.47, according to Bloomberg. 

The research firm also noted that following a decline of over 15% in CelcomDigi's share price in the past three months, the 5G capital expenditure risk is largely priced in.

“The stock could be rerated when merger synergies begin to manifest more meaningfully, possibly from the financial year ending Dec 31, 2025 (FY2025) onwards,” it said. 

Maybank IB noted that while 5G capex risk had resurfaced for telcos, CelcomDigi had been hardest hit, losing more than RM8 billion of equity value in the past three months. 

“The value erased was more than sufficient to fund a hypothetical participation into a consortium for the second 5G network, in our view. DNB had initially budgeted about RM12 billion for network/infrastructure costs,” it said.

“CelcomDigi’s investment thesis had revolved mainly around realising the merger synergies, which were significant (about RM8 billion net present value over five years) but back-loaded,” it added.

The research house also noted that while integration works are still ongoing, it expect merger synergies to manifest more significantly from FY2025.

“Timeline-wise, the management should provide some guidance on FY2025 synergies in the results briefing in February 2025 (for the fourth quarter ending Dec 31, 2024 or 4QFY2024),” it added. 

Maybank IB maintained its earning forecasts for CelcomDigi, including a core net profit of RM1.58 billion or 13.5 sen per share for FY2024, and a core net profit of RM2.37 billion or 20.2 sen per share for FY2025.

“The process of splitting telcos’ 5G participation into Entity A or Entity B should soon begin. 

“The major mobile telcos have publicly declared a willingness to participate in the second 5G network. In the longer term, we expect the respective 5G entities to eventually be equity-accounted for by the participating telcos,” it added.

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