PETALING JAYA: Analysts remain “neutral” on the telecommunication sector amid uncertainty over the impact of the takeover of Digital Nasional Berhad (DNB) by mobile network operators (MNO).
Kenanga Research said in contrast, fixed-line players are more compelling, as they are largely insulated from this overhang that affects earnings, capital expenditure (capex), and dividend outlooks for the MNOs.
A senior telco analyst concurs, saying that the market is increasingly viewing fixed-line operators as the “higher-quality” part of telcos.
“Mobile operators are more mature in a sense, and margin pressures within that segment feels higher,” he told StarBiz.
In its report, Kenanga Research said as the retail market reaches maturity, fixed operators are expected to focus more on enterprise and wholesale segments.
Enterprise demand is being boosted by the fast growth of co-location data centres in Malaysia, while the wholesale segment is gaining from hyperscaler investments in local campuses and cloud regions, it told clients.
The research house said looking ahead, it anticipated greater clarity and further progress on the government’s rollout of the 5G Dual Network (5GDN) framework.
In the latest development, the three MNOs – YTL Power International Bhd
, CelcomDigi Bhd and Maxis Bhd – have each paid RM327.9mil to the Ministry of Finance Inc (MoF) following the exercise of MoF’s put option on DNB, it noted.
However, we understand that the completion of the overall transaction is subject to several conditions precedent, which are expected to be fulfilled by the first half of this year, Kenanga said.
Upon completion, each MNO will take over a 33% stake in DNB together with MoF’s remaining shareholder loan (including accrued interest) and additional shareholder advances (circa RM161.2mil each).
“Depending on the final completion date, each MNO is expected to begin recognising its share of DNB’s contribution (or losses) as an associate under the equity accounting method.
Therefore, we await confirmation of the transaction’s completion date, as it will determine the timing and extent of DNB’s contribution to each MNO.”
Kenanga Research said the takeover may also have implications for the MNOs’ dividend capacity, given that their cash flows could be affected by the need to commit additional capital to fund DNB’s operational and capex requirements.
It also said although DNB reported a net loss of RM1.2bil in in its fiscal year 2024, it believed its financial performance may potentially improve in the coming years.
This is driven by initiatives from its MNO shareholders to narrow losses and strengthen the company’s long-term sustainability and recall that DNB underwent a restructuring exercise in early 2025, involving a comprehensive overhaul of its business model, funding structure, and operational setup, Kenanga Research added.
Kenanga is retaining a neutral view on the telco sector, given ongoing uncertainties surrounding DNB’s financial outlook and the implications of its takeover by the MNOs.
Further clarity on these developments will remove ambiguity surrounding the sector’s earnings trajectory, capex requirements, and dividend outlook, it said, adding that in the interim, it favoured fixed line operators, which are comparatively less exposed to overhangs linked to the 5GDN framework.
On a brighter note, the potential for enhanced dividend distributions could support overall sector sentiment, it added.
