PETALING JAYA: The telecommunications sector is shifting from destructive price wars to tighter price discipline and strict cost controls.
In a report, RHB Research said traditional mobile pressures are increasingly offset by structural heavyweights such as Telekom Malaysia Bhd
’s (TM) booming artificial intelligence (AI) data centre (DC) business making selective stock-picking the key strategy for investors looking past a “neutral” sector rating.
Despite trading at deeply discounted valuations, approximately 1.8 standard deviations below its historical enterprise value or EV/earnings before interest, taxes, depreciation and amortisation or Ebitda mean, analysts advise against expecting an unbridled, market-wide rally.
Lingering risks surrounding Digital Nasional Bhd’s (DNB) profitability roadmap and potential regulatory headwinds ahead of a likely general election in 2027 continue to keep broad market sentiment grounded .
“On balance, we expect stronger earnings delivery in the second half of 2026 (2H26) from seasonally stronger mobile revenue (monetisation and selective price repair) and sustained operation expense savings,” it said.
This includes TM’s earnings before interest and taxes or Ebit improvement from higher wholesale contributions and the low base in 1H26 arising from the lumpy write-down of 5G access prepayment in the first quarter of 2026 (1Q26).
On the regulatory front, RHB Research expects the public consultation on the mandatory standard on access pricing (MSAP) to begin in 4Q26 with implementation likely by the end of 1Q27.
“Our discussions with the telecommunications companies (telcos) suggest manageable earnings impact from MSAP, while the lower 4G wholesale cost should be positive for TM. We expect the letter of awards for the maiden batch of Jendela Phase 2 or JP2 sites to be issued by November.”
While a RM5.2bil debt restructuring has calmed fears of immediate funding stress or sudden cash calls from telco shareholders, the market still wants more clarity on DNB’s path to profitability and future capital spending.
“Meanwhile, adding an extra 100MHz carrier (FO) improves network capacity, helping DNB close the gap with competitors,” RHB Research explained.
The research house has issued “buy” ratings on three top picks – TM, CelcomDigi Bhd and OCK Group Bhd – at target prices of RM9.30, RM3.70 and 80 sen, respectively.
It said TM is a major structural winner riding the AI and DC boom as its massive fiber footprint, subsea cables and domestic DC assets position it well.
“Over 70% of its upcoming AI DC with Singtel (TM Nxera) is already pre-sold ahead of its 4Q26 launch, and shifting to U Mobile’s network for 5G wholesale and past manpower cost-saving programmes (Prihatin) will lower direct operational costs.”
CelcomDigi is the preferred mobile network operator or MNO pick, as operational synergies from their merger are expected to ramp up strongly into financial year 2027 as efficiency initiatives gain full momentum.
OCK represents a smaller-cap telco infrastructure play, benefiting from a fast-growing digital business and expanding footprint in the public sector.
The research house noted other covered stocks including Maxis Bhd at a target price of RM3.80, with a solid, stable dividend profile maintaining high dividend payout ratios, and TIME Dotcom Bhd with a target price of RM6, which offers attractive dividend yields backed by balance sheet adjustments.
Telcos also continue to protect and enhance dividend payouts because their capital expenditure needs are manageable.
TM raised its dividend payout ratio to a minimum of 75% of profits, Time dotCom is optimising its balance sheet to lift returns, and both Maxis and CelcomDigi maintained strong payout policies above 75% to 80% of core earnings.
The downside risks include intense market competition and earnings or dividend disappointments as well as regulatory setbacks or unexpected government policy changes ahead of a potential 2027 general election.
