RHB Research’s top picks for the sector are TM, Axiata and CelcomDigi.
PETALING JAYA: The telecommunications sector is expected to face continued competition across mobile and home fibre broadband services, with growth in the latter showing signs of tapering, according to RHB Research.
The research house noted that mobile network operators (MNOs) posted 1% year-on-year (y-o-y) growth in mobile-service revenue last year, with a 0.8% quarter-on-quarter (q-o-q) increase for the fourth quarter.
This was driven by the conversion of prepaid to postpaid plans and fibre broadband (FBB) bundling activity.
Postpaid revenue rose by 3% y-o-y, offsetting a 2.8% y-o-y decline in prepaid revenue.
“After two consecutive quarters of tactical acquisition campaigns, industry FBB revenue momentum appears to be tapering, with Telekom Malaysia Bhd
(TM) and Maxis Bhd posting slower subscription growth q-o-q,” RHB Research said.
Nevertheless, the industry’s average revenue per user (Arpu) remained stable, supported by ancillary services and upgrades to higher-speed plans.
Looking ahead, RHB Research expected competition to “remain tight as consumers gear up for another round of subsidy rationalisation”.
It added that MNOs would continue to focus on their share of consumer wallets.
“For this year, we believe mobile-sector earnings growth may be crimped by higher 5G wholesale charges from increased 5G traffic, albeit with offsetting effects from cost optimisation initiatives,” the research house said.
In terms of shareholder returns, special dividends were a standout feature in the last quarter.
TM declared a special dividend of six sen on top of its final dividend of 12.5 sen, bringing its cumulative dividend per share to a record-high 31 sen.
“Its dividend payout ratio of 59% is at the top end of its 40% to 60% guidance, based on reported profit after tax and minority interests,” RHB Research said.
The special dividend was attributed to a higher profit base with tax credits recognised.
TIME Dotcom Bhd similarly declared a notable 27.45 sen special dividend, which, combined with its ordinary dividend, elevated its full-year dividend payout ratio to 272%.
Meanwhile, Maxis announced a final dividend that exceeded its usual payout trend, which management described as a “one-off”.
RHB Research saw further potential for capital-management initiatives, citing TM’s “strong balance sheet, with net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) of 0.6 times” and Time’s “net cash position”.
In terms of earnings performance, fixed-line operators outperformed their mobile counterparts again.
For the fourth quarter of last year (4Q24), fixed-line players posted a 59% y-o-y increase in aggregate profit after tax and minority interests, in contrast to a 9% y-o-y decline for the MNOs.
The stronger fixed-line growth was partly attributed to a RM372mil tax credit recognised by TM in 4Q.
“Of the stocks we cover, five telcos delivered earnings that were in line with forecasts while Axiata Group Bhd lagged our forecast but beat consensus forecasts,” RHB Research said, adding it revised its 2025 to 2026 core earnings forecasts for Axiata by minus 10% to 8% based on updated guidance.
“We expect sector core earnings, excluding Axiata, to grow by around 8.6% this year compared with 0.2% last year, largely on stronger earnings from higher merger synergies at CelcomDigi Bhd,” RHB Research added.
RHB Research’s top picks for the sector are TM, Axiata and CelcomDigi. It maintained its “neutral” stance on the sector.
“Telecommunications company or telco share prices have de-rated by around 6% year-to-date on the back of broader market weakness,” RHB Research said.
The research house saw current sector valuation at “seven times forward enterprise value to Ebitda”, reflecting the risk-reward profile.
“We prefer fixed-line players, given their more discernible catalysts and structural growth drivers,” it said.
