PETALING JAYA: The rollout of U Mobile Sdn Bhd’s newer fifth-generation (5G) network could eventually give the company a structurally lower cost base, potentially enabling it to undercut existing pricing offered by Digital Nasional Bhd (DNB) once its network achieves scale around 2028.
CGS International (CGSI) Research said this emerging competitive threat is long-term risk to Malaysia’s mobile telecommunications sector, moving forward.
It highlighted Telekom Malaysia Bhd
’s recent announcement that it plans to switch to U Mobile’s network, lends support to the view that U Mobile could emerge as a more cost-efficient network operator over time.
“U Mobile’s newer 5G rollout should provide it with a lower cost structure, allowing it to undercut DNB’s price points when the rollout achieves scale,” CGSI Research said.
It warned that the current telecommunications industry’s structure could eventually trigger stronger competitive pressures, particularly if incumbent players attempt to defend market share aggressively through mobile virtual network operators (MVNOs).
Singapore could be a similar case where its experience after 2019 saw incumbents using MVNO strategies to respond to the rollout of a new 5G player, then known as TPG Singapore and later renamed Simba Telecom.
According to CGSI Research, the move resulted in a 24% decline in mobile revenues for major operators over the following years, from 2018 to 2025.
It pointed out that the combined market capitalisation of Maxis Bhd and CelcomDigi Bhd (CDB) has already fallen about 6% since end-February 2026.
CGSI Research believes the decline largely reflects growing investor recognition of the negative earnings impact from equity accounting for DNB beginning this year.
The research house expects DNB equity accounting to commence from the third quarter of 2026 and has consequently reduced its financial year 2026 (FY26) to FY28 core net profit forecasts for Maxis and CDB by between 0.4% and 7.8% respectively.
The revisions factor in several items including DNB-related losses, annual capital injections into DNB by shareholders, lower capital expenditure (capex) due to DNB bearing future 5G rollout costs, as well as increased network rental income from leasing network elements to DNB.
CGSI Research noted that its previous non-consensus view had assumed both Maxis and CDB would eventually roll out their own standalone 5G networks.
Despite the earnings revisions, the research house said reduced capex requirements should partly cushion the impact, as DNB would absorb future 5G investment spending.
Capital injections by DNB’s shareholders, including CDB and Maxis, are seen to support DNB’s cashflow requirements.
“We do assume that beginning next year, Maxis and CDB will rent network elements to DNB, thus mitigating the impact of the DNB losses on their net profits,” it said.
Nevertheless, CGSI Research maintained a cautious stance on Malaysian mobile operators due to heightened competition risks.
The research house lowered its Gordon Growth Model-derived target prices for Maxis and CDB to RM3.72 and RM3.10 respectively, from RM4 and RM3.38 previously, while maintaining “hold” calls on both counters.
CGSI Research said it raised beta and cost of equity assumptions for the two companies to reflect the heightened competitive risks in the sector.
The research house maintained a “neutral” stance on the broader telecommunications sector, preferring non-mobile exposure through Telekom Malaysia (top pick) and Axiata Group Bhd.
