The telecommunications sector has made notable strides, particularly with the recent announcement of the 5G spectrum recipient, which is expected to bring an end to the long-standing impasse affecting the industry.
RHB Investment Bank Bhd (RHB Research) has maintained a NEUTRAL outlook on the sector, indicating that while this development is promising, uncertainties regarding its overall impact on sector earnings and costs remain.
RHB Research recommended Telekom Malaysia Bhd$TM (4863.MY)$, $AXIATA (6888.MY)$ and $CDB (6947.MY)$ as their top picks, highlighting a balanced view with four buy ratings and two neutrals among the six stocks covered. The competitive landscape among mobile network operators (MNOs) continues to intensify, with companies focusing on tactical promotions to sustain their market shares. The research house noted that this tight competition is likely to suppress mobile data yields, particularly as unlimited offers dominate promotional efforts.
Although 5G adoption is gaining momentum, driven by attractive device campaigns, the lack of retail use cases and high data quotas indicate that monetisation may take time. Migration activities and the upselling of fibre broadband packages could provide some support for average revenue per user (ARPU).
As interest rates enter a down cycle, digital infrastructure assets are witnessing increased valuations, which may lead to corporate actions and mergers and acquisitions within the sector in 2025.
RHB Research identifies TM as a key beneficiary of the growing demand for data centres and artificial intelligence (AI), bolstered by its stronghold over fibre and digital infrastructure assets in Malaysia. The expansion of its dual-core data centre facilities in Cyberjaya and Iskandar Puteri is expected to meet rising co-location demands, with the potential for data centre EBITDA to double by FY27.
Furthermore, TM's joint venture with Singtel to develop a 64MW AI data centre in Johor could contribute RM80-RM85 million in earnings, approximately 4% of FY27's PATAMI and 37 sen to TM's discounted cash flow (DCF) valuation, according to RHB Research's estimates.
Despite the anticipated resolution of the 5G spectrum tender, the research house cautions that the outcome may not resolve all existing challenges. The new framework introduces uncertainties around wholesale costs, the cost to serve and capital expenditure, which could limit the potential upside for MNOs.
The success of these outcomes will depend on network collaborations established with non-5G spectrum holders. The dual 5G network framework shifts the sector from a single wholesale network model, and additional spending on the second 5G network provider, along with site densification efforts, is expected to benefit infrastructure players like TM and OCK Group Bhd.
The stocks mentioned in the report are as follows, alongside their target prices (TP):
Axiata — Buy, TP RM3.40
CelcomDigi — Buy, TP RM4.55
OCK — Buy, TP 78 sen
TM — Buy, RM8.40
$MAXIS (6012.MY)$ — Neutral, TP RM3.86
Time dotCom — Neutral, TP RM5.10
