CDB: Higher Costs Depress Earnings, Future Growth Hinges on Post-2027 Synergies
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A major telecommunications provider has reported a challenging period, with its 9M25 core earnings falling 9% year-on-year to RM1.2 billion. This performance significantly underperformed both consensus estimates (70%) and AmInvestment Bank’s own projection (62%), primarily attributed to an escalation in operational costs.
Performance Review
The lower earnings were driven by several factors, notably elevated 5G wholesale charges, reflecting increased available network capacity. The company also registered a substantial increase in provisions for doubtful debts, which climbed to 2% of 9M25 revenues (up from 1% in 9M24), following issues with earlier collection processes. Further weighing on the results was a one-off RM44 million charge in 3Q25 related to a prior period misstatement.
Service revenues remained largely flat, with a modest uptick in consumer revenue (+0.6% YoY) offset by a decline in enterprise revenues (-6% YoY). Within the consumer segment, postpaid (+4% YoY) and fibre (+45% YoY) growth was tempered by a contraction in prepaid (-5% YoY). Mobile enterprise revenues fell by 7% YoY, primarily due to a structural decline in bulk SMS, though its contribution is now less significant.
Future Outlook and Synergies
Despite the earnings miss, the company is making steady progress on its integration initiatives. As of 3Q25, it has completed over 90% of its network modernisation, launched a unified application, and is in the process of retail upgrades. It has already achieved RM2.4 billion in synergies. Management aims to deliver RM8-10 billion in net present value (NPV) synergies over five years, with an annualised cost savings target of RM700-800 million expected to materialise predominantly after 2027.
AmInvestment Bank highlights that the investment case for the company largely hinges on these anticipated synergies, which are expected to move the needle meaningfully post-2027. The bank noted that execution risk remains a key concern should these promised synergies fail to materialise.
Analyst Rating
AmInvestment Bank maintained its HOLD recommendation on the company, revising its target price downwards to RM3.70 from RM3.85. The valuation is based on a 9.5x EV/Ebitda multiple and CY26 Ebitda. While the group is viewed positively for its decent 4% dividend yield and defensive earnings profile, the bank emphasizes the critical role of successful synergy realisation for future performance.
