The DNB overhang is the dominant structural issue.
PETALING JAYA: The telecommunications (telecoms) sector is heading into 2026 with modest revenue growth but improving cash-flow dynamics, as structural pressures from 5G and Digital Nasional Bhd (DNB) are gradually counterbalanced by tighter cost control, slower capital expenditure (capex) and rising contributions from fibre, enterprise and data-centre services.
From a regional perspective, Malaysia is expected to remain a low-growth but stable market.
Analysts are generally “neutral” on the telecoms sector outlook for 2026 but appeared steadier than in recent years.
According to Maybank Investment Bank Research (Maybank IB), the Asean sector is forecast to grow revenues by about 4% in 2026.
“Indonesia witnessed competitive improvement in mid-2025, and thus the full-year impact should be visible in 2026, although upside is already priced in with stocks up 29% in 2025.
“Thailand, the Philippines and Malaysia growth at 2% to 3% is likely to remain range-bound in the absence of any major tailwinds, although competition remains relatively stable,” the research house said.
Competition is described as relatively stable, and the main upside is not from top-line acceleration but from cost discipline and easing capital intensity, which are driving stronger earnings and free cash flow across the region.
For Malaysia specifically, Maybank IB said sector core net profit is projected to rise by about 12% in financial year 2026 (FY26) from an estimated 3% decline in FY25, helped by merger synergies at CelcomDigi Bhd
, although losses from DNB remain a drag for mobile operators.
The DNB overhang is the dominant structural issue.
With CelcomDigi, Maxis Bhd and YTL Communications Sdn Bhd each moving towards an effective 33.3% stake following the Finance Ministry’s put-option exercise, the operators will have to equity-account DNB’s losses (about RM1.2bil in FY24 alone).
Khair Mirza, head of airportIR & Industry Research at Modalis Infrastructure Partners Inc told StarBiz the uncertainty of DNB’s roll-out schedule and economics without MoF joint-ownership is commonly cited as a key issue to watch.
“On the user end, the whispered restriction on under-16’s from social media could alter user trends and penetration not just in 2026 but more broadly affect both content providers and users,” he said.
An analyst told StarBiz that further cost optimisation and debt restructuring at DNB are critical if the wholesale 5G model is to turn around.
“This explains why Malaysian telecommunications company or telco valuations still trade at a discount to historical averages despite healthy dividends: extended uncertainty over 5G economics continues to cap re-rating potential,” he said.
He added that against this backdrop, the sector’s growth narrative is shifting away from consumer mobile and towards fixed-line, wholesale and enterprise services.
He pointed out that household fibre penetration is already above 50%, which should ease price competition in broadband, while demand for cloud connectivity, artificial intelligence workloads and data-centre co-location is accelerating.
RHB Research has maintained its “neutral” view on the sector with Telekom Malaysia Bhd (TM) and Axiata Group Bhd as its top picks.
“With TM’s net debt over earnings before interest, taxes, depreciation and amortisation (Ebitda) hitting new lows and its manageable capex going forward, we see a strong likelihood of a positive dividend surprise,” it added.
Regionally, Maybank IB foresaw a bigger tilt towards efficiency gains in 2026.
“With a big chunk of peak network expansion behind us and rationalising sales, marketing and subsidy expenses amidst competitive rationality, we expect operating expenditure to increase at a softer clip than revenue growth,” it said.
The research house expected Ebitda for telcos in the region to improve at a healthy rate of 6% this year.
“All in all, helped by operating leverage and efficiency gains, we expect sector earnings to grow at a healthy 15% year-on-year and free cash flow to grow at 20% compound annual growth rate,” the research house said.
