PETALING JAYA: Amid market volatility in the past month, the telecommunications sector underperformed the benchmark FBM KLCI by 1.6%.
UOB Kay Hian Research (UOBKH Research) is maintaining its “market weight” call on the sector, stating that its underperformance was due in part to the long-drawn 5G challenges and stiff competition in the home fibre segment.
“Trading at seven times enterprise value/earnings before interest, taxes and amortisation, we opine the current valuation is fair and has largely factored in stiff competition within the pre-paid and fixed-line segments to create stickiness in the consumer space,” it said in a report to its clients.
It noted that full-year 2024 sector earnings expanded 9% on a year-on-year basis.
It said Axiata Group Bhd
registered stronger-than-expected earnings driven by revenue flowthrough from PT XL Axiata Tbk, Robi Axiata Ltd and Dialog Group Bhd as well as good cost control and lower interest charges.
It also noted that Time dotCom (Time) Bhd reported commendable bottom line growth of 8% on the back of higher household penetration and enterprise cloud solution services.
Additionally, CelcomDigi Bhd’s earnings (excluding accelerated depreciation and impairment charges) grew 19% despite higher network maintenance, site rental costs and higher 5G access costs, said the research house.
The year 2024, it noted, was characterised by postpaid revenue continuing to grow on the back of prepaid to postpaid migration, prepaid churn remaining high amid intense competition.
However, fixed home broadband competition abated modestly towards end-2024. There were higher dividend payouts on the back of good cost control and balance sheet discipline across the sector.
“We ended the year with U Mobile Sdn Bhd being awarded the second 5G spectrum in Malaysia.”
In the report, UOBKH Research noted that U Mobile is expected to receive the official award from the Malaysian Communications and Multimedia Commission to begin rollout of 7,000 to 8,000 5G radio stations.
“U Mobile has secured financial backing from CIMB Group Holdings Bhd to build the second network.
“As at end-December, Malaysia had 18.2 million 5G service subscriptions, representing an adoption rate of 53.4%,” it said.
It said U Mobile signed a memorandum of understanding with edotco Malaysia Sdn Bhd to effectively roll out 5G services in Malaysia.
Key risks to UOBKH Research’s investment thesis include earnings eroding for fixed-line operators due to stiff competition, lower-than-expected synergistic savings from the CelcomDigi merger exercise, and an economic downturn which will lead to shrinking customer wallets and service revenue for the sector.
The research house noted that in 2024, strong cashflow paved the way for attractive yields.
Of notable interest was Time’s higher-than-expected payout on the back of a balance sheet optimisation exercise.
In addition, Telekom Malaysia Bhd also announced a special dividend of six sen on the back of a strong cashflow, leading to full-year 2024 net dividend per share of 31 sen per share or a 4.5% yield.
