PETALING JAYA: The telecommunications sector is expected to deliver steady earnings growth despite lingering concerns over 5G wholesaler Digital Nasional Bhd (DNB), with analysts maintaining a “neutral” stance while favouring selected operators with stronger earnings visibility and cost-saving catalysts.
UOB Kay Hian (UOBKH) Research maintained its “market weight” call on the sector, noting that first-quarter 2026 (1Q26) earnings were broadly in line with expectations, while Axiata Group Bhd
and Maxis Bhd outperformed forecasts.
Following the results season, the research house raised its 2026 sector earnings forecast by 5%.
“The quarter was characterised by a 2% year-on-year service revenue growth, robust demand for fibre, and continuous pre-to-postpaid migration,” it said.
The sector is projected to record earnings growth of 5% in 2026 and 18% in 2027.
Meanwhile, RHB Research maintained a “neutral” rating, describing the March quarter as a seasonal quarter where earnings largely met expectations.
It said shorter working days and strong 4Q comparisons resulted in softer sequential revenue, although sector earnings before interest, taxes, depreciation, and amortisation still rose 5% quarter-on-quarter due mainly to stronger performances from CelcomDigi Bhd and Telekom Malaysia Bhd (TM).
UOBKH Research said home fibre operators continued to benefit from strong broadband demand and device-bundling offers, while RHB Research sees the fixed-line segment offering brighter growth prospects supported by wholesale connectivity and data centre expansion.
A major overhang remains DNB, whose losses are expected to be consolidated into participating telecommunications companies (telcos) in the coming years.
However, UOBKH Research believes the market has largely priced in the impact.
It expects DNB’s losses to narrow from about RM600mil currently to RM300mil by 2027 and potentially break even by 2028 as operators optimise network assets and tower infrastructure.
An analyst told StarBiz he expects competition to remain intense as operators focus on value-added services rather than price cuts.
He warned that a weaker global economic environment could delay enterprise digitalisation and IT spending, although cost optimisation should help cushion earnings.
He also noted that evolving 5G developments, including U Mobile’s network rollout and TM’s termination of its DNB access agreement, could continue to weigh on sector sentiment.
UOBKH’s top picks are CelcomDigi, Maxis and Axiata. It upgraded Maxis to a “buy”, citing an attractive valuation following recent share price weakness. Catalysts include Axiata’s potential monetisation of its stake in tower unit Edotco and CelcomDigi’s merger-related synergies.
Management has guided that CelcomDigi is on track to achieve RM700mil to RM800mil in annual cost savings by 2028.
RHB Research’s preferred names are TM and CelcomDigi.
