Kenanga Research maintained its “neutral” view on the telecoms sector.
PETALING JAYA: A detailed implementation mechanism for the 5G dual network policy will be the key determinant going forward for the telecoms sector’s earnings, capital expenditure (capex) commitments and dividend sustainability, analysts say.
Kenanga Research said there is a possibility that there could be higher shareholder returns via special dividends this year from both TIME Dotcom Bhd
and Maxis Bhd.
This would be supported by muted 5G capex requirements and a stronger focus on balance sheet optimisation for Time.
The research house maintained its “neutral” view on the telecoms sector given the lack of clarity over the implementation mechanism of the 5G dual network framework.
How the mobile network operators will ultimately align between the second 5G network and Digital Network Bhd’s existing network will determine the sector’s earnings, capex commitments and dividend sustainability, it said.
Given the scenario, the research house prefers fixed-line operators, which are less exposed to near-term policy risks, including the 5G dual network.
Its top picks remain Telekom Malaysia Bhd (TM) and Time.
It favours Time as it is well positioned to fulfil the interconnection needs of hyperscale data centres and expansion across Asean by providing cross-border as well as middle and last-mile fibre connectivity.
Its associate, AIMS Data Centre Sdn Bhd, is actively scaling data centre capacity into new regional markets, allowing it to tap into accelerating co-location demand driven by tightening data residency regulations.
It will gain from increasing cloud and connectivity needs among local enterprises undergoing digital transformation, and potentially higher dividend payouts from planned balance sheet optimisation.
The research house likes TM for it is focusing on structural data growth trends including digital transformation, proliferation of the Internet of Things (IoT) and the rise of generative artificial intelligence-driven cloud services.
There are potential infrastructure project awards from the upcoming second phase of the Jendela national digital network programme, and earnings accretion from its upcoming hyperscale data centres developed in partnership with Singtel.
There is increasing demand for terrestrial fibre connectivity from hyperscalers and global content providers as they seek to connect their digital assets in Malaysia with global network backbones.
For the sector as a whole, core net profit for the first half of this year (1H25) rose 3% year-on-year (y-o-y), driven by cost efficiencies at Maxis and Axiata Group Bhd (on a constant currency basis), which more than offset weaker contributions from CelcomDigi Bhd.
Mobile service revenue for major domestic mobile network operators edged down, weighed by weakness in the prepaid segment.
This stemmed from subscriber churn for CelcomDigi, and Maxis’ change in revenue recognition for its SafeDevice programme.
Kenanga Research said fixed-line players delivered topline growth of 2.8% y-o-y as stronger contributions from Time’s enterprise and retail customers more than offset weakness in TM’s enterprise and wholesale divisions.
