PETALING JAYA: The telecommunications (telecoms) sector has been downgraded to “neutral” by research houses, as lingering uncertainty surrounding Digital Nasional Bhd (DNB) clouds earnings visibility for mobile operators, even as fixed-line players offer some dividend support.
Maybank Investment Bank Research (Maybank IB) and BIMB Research now adopt a more cautious tone, citing earnings dilution risks, valuation concerns and the lack of near-term re-rating catalysts.
“The overall outlook for the sector remains mixed in our view, with possible upside risks to dividends (more proactive capital management) in the fixed-line space being offset by potential downside risks to earnings in the mobile space (equity accounting of DNB losses),” Maybank IB said.
Following the Finance Ministry Inc’s exit from DNB, remaining telecommunications company (telco) shareholders will be required to equity account losses from the 5G wholesaler, which reported a net loss of RM1.2bil in financial year 2024 (FY24).
Maybank IB warned that “5G uncertainty (will) remain an overhang for the mobile telcos” until there is clearer guidance on the loss run rate and commercial framework.
Against this backdrop, Maybank IB downgraded the telecoms sector to “neutral” from “overweight”, highlighting that while sector core net profit is projected to grow 12% in FY26, downside risks persist.
Among mobile players, CelcomDigi Bhd
is expected to lead FY26 earnings growth as merger synergies begin to partially manifest, though it has not incorporated mobile telcos’ impending equity accounting of DNB’s losses into its forecast.
On dividends, Maybank IB believes Maxis Bhd would maintain a four sen absolute dividend per share per quarter, while CelcomDigi’s payouts are likely to track earnings due to its near-100% payout ratio.
BIMB Research echoed these concerns and turned more explicit in its downgrades.
It said “persistent DNB losses could impose a RM400mil per annum earnings drag, or 20% to 25% downside, on CelcomDigi and Maxis, prompting it to cut CelcomDigi’s target price to RM3.30 and downgrade Maxis to sell with a lower target price of RM3.30.
The research house cautioned that as equity accounting commences, the likelihood of earnings dilution rises, especially during the early phase when 5G utilisation and monetisation remain nascent.
It noted that the prolonged underperformance of mobile operators has driven a sector de-rating, with telcos now trading at 23.3 times forward price earnings ratio, underscoring weak sentiment and the absence of clear catalysts. While longer-term opportunities exist in enterprise 5G use cases, it warned monetisation is unlikely to be linear, especially with added competition from U Mobile in wholesale.
In contrast, both houses remain relatively more constructive on fixed-line players.
“As fibre rollout slows, capex of fixed-line telcos is also tapering, resulting in strong free cash flow generation.
“Coupled with a more proactive approach to capital management, we see potential upside risk to dividends for both Telekom Malaysia Bhd (TM) and TIME Dotcom Bhd,” Maybank IB said.
However, BIMB Research flagged that TM and Time have rerated sharply in 2025 and now trade as defensive proxies.
“Following a strong price run-up, we downgrade both to ‘hold’ with an unchanged target price (TM: RM7.78; Time: RM5.60),” the research house said.
Axiata Group Bhd stands out as the sole “buy” for both research outfits backed by balance sheet optimisation and potential value unlocking from the Edotco monetisation exercise that analysts believe is not fully priced in.
