PETALING JAYA: The lack of meaningful re-rating catalysts and 5G policy uncertainty will continue to cap sentiment on the local telecommunication companies’ (telcos) stocks, according to RHB Research.
A stock-picking strategy remains favoured, with a preference for fixed-line plays, given their more discernible catalysts, structural growth drivers and capital management prospects, said the research house.
It is maintaining its “neutral” call on the sector, while naming Telekom Malaysia Bhd
(TM), Axiata Group Bhd and Celcom DiGi Bhd as its top picks.
The research house has “buy” calls for all three stocks with respective target prices of RM8.15, RM3.20 and RM4.30 a share, respectively.
The key downside risks include competition, weaker-than-expected earnings and regulatory setbacks.
The research house is expecting mobile and fibre broadband competition to remain tight going into the second half of 2025, as telcos continue to defend their respective value propositions.
In its view, the RON 95 subsidy rationalisation in the later part of the year could also crimp consumer sentiment and usage propensity.
On 5G, RHB Research said after incurring minimal/modest 5G wholesale charges in 2023 to 2024, telcos are expected to pay higher 5G network fees to Digital Nasional Bhd (DNB) from 2025 onwards, driven by greater adoption and data traffic.
Its forecast is that telcos have imputed 5G wholesale charges of RM250mil to RM300mil in financial year 2025, based on the previous access agreements inked between the telcos and DNB.
“For TM, the higher wholesale charges would be partly offset by wholesale revenue from 5G mobile backhaul fiberisation revenue,” said the research house.
On top of that, Maxis Bhd should see some buffer from the multi-operator core network or MOCN deal inked with TM.
The rollout of a second 5G network should, in theory, offer mobile network operators a more competitive wholesale framework, which should lead to the dismantling of DNB’s de-facto monopoly over 5G access, although RHB Research believes much of this is contingent on the outcome of the revised business model for DNB.
In the fourth quarter of 2024, Maxis Bhd, TM and TIME Dotcom Bhd (TDC) declared higher dividends.
RHB Research foresees the strongest capital management upsides for TM and TDC due to their stronger balance sheets and free cash flows, with net debt/earnings before interest tax depreciation and amortisation of 0.6 times for TM and a net cash position for TDC.
Furthermore, the research house said renewed capital spending following the announcement of the second 5G network operator, alongside the rollout of a number of policy-driven initiatives will also benefit telco infrastructure-centric players going forward.
