PETALING JAYA: The telecommunications sector is expected to see a stronger second half of financial year 2026 (2H26) as the long-running uncertainty surrounding Digital Nasional Bhd (DNB) moves closer to resolution, paving the way for improved earnings visibility, more rational competition and a potential re-rating of mobile operators, according to Hong Leong Investment Bank (HLIB) Research.
The research house said the lingering overhang linked to DNB has weighed particularly on CelcomDigi Bhd
and Maxis Bhd, amid speculation that Maxis could acquire U Mobile and shift its focus to the country’s second fifth-generation (5G) network.
Although merger discussions were reportedly explored earlier this year, HLIB Research says the chances of this happening is low.
“We believe the likelihood of this scenario is diminishing,” it said.
“While owning a separate 5G network could allow Maxis to preserve its network differentiation rather than move towards network parity under DNB, we do not view the strategic incentive is strong enough to justify paying a substantial cost to acquire U Mobile,” it added.
HLIB Research expects “the point of no return” to come around the end of the third quarter of financial year 2026, when the DNB share transfer is completed and Maxis and CelcomDigi begin jointly optimising the national 5G network to improve DNB’s cost structure.
Against that backdrop, it expects mobile service revenue to remain on a positive trajectory through 2H26.
Although average revenue per user (Arpu) continued to improve in the first half, HLIB Research said the benefits of recent pricing revisions had yet to be fully reflected in operators’ financial performance.
“As average data consumption continues to increase, we expect subscribers to naturally migrate towards the new pricing structure, driving gradual Arpu uplift through 2H26 with limited churn risk,” it explained.
It said current 2026 guidance for low single-digit service revenue growth from both CelcomDigi and Maxis remains achievable, while recent pricing actions by all three mobile operators indicate that competitive intensity has eased structurally.
“We view the pricing actions across all three operators as further evidence that competitive intensity has structurally moderated and become more rational amid heavy investment costs for 5G network rollout, supporting a more favourable industry earnings outlook,” it noted.
HLIB Research added that despite improving fundamentals, both Maxis and CelcomDigi continue to trade below their historical valuation averages, with investors still largely treating DNB as an unresolved earnings drag.
It expects this valuation gap to narrow after the DNB share transfer, as management gains greater scope to provide clarity on network optimisation, cost efficiencies and future spectrum refarming initiatives.
The research house also maintained a constructive outlook on the fixed-line segment, saying pricing discipline in the fibre broadband market has strengthened despite ongoing competition for subscribers.
Rather than relying on headline price cuts, operators have focused on targeted promotions, faster broadband speeds, bundled services and contract renewal offers to improve customer retention while preserving Arpu.
HLIB Research maintained its “overweight” call on the sector, naming Telekom Malaysia Bhd (TM) and CelcomDigi as its preferred picks.
It retained a “buy” rating on TM with a target price of RM8.60.
The research house also retained a “buy” rating on CelcomDigi with a target price of RM3.70, “buy” on Axiata Group Bhd with a target price of RM2.95, and “hold” on TIME Dotcom Bhd with a target price of RM5.50.
It said fixed-line operators remain well positioned to benefit from broadband, 5G infrastructure and data centre deployment, while the clearing of the DNB overhang should create stronger rerating opportunities for mobile operators in the months ahead.
One analyst told StarBiz that the telecommunications sector appears to be entering a more stable operating environment, with improving pricing discipline and greater clarity over network investments.
“While regulatory developments and competitive dynamics will continue to shape the industry, operators with strong execution, resilient cash flows and disciplined capital allocation are likely to be best placed to benefit as market conditions normalise,” he said.
