RHB Investment Bank Bhd (RHB Research) has maintained its NEUTRAL rating for the telecommunications sector, highlighting preferred picks in Telekom Malaysia Bhd (TM), Axiata Group Bhd and CelcomDigi Bhd. The research house cited TM's strong performance, delivering a 25% return in 2024 compared to mobile network operators (MNOs), which saw returns decline between 5% and 9%. Excluding TM, the sector delivered a -2% return, reflecting the impact of regulatory risks and ongoing challenges in 5G monetisation.
The research house observed nominal growth prospects for the sector in 2025, although competition is expected to remain intense. Mobile service revenue growth may be constrained by the knock-on effects of subsidy rationalisation, which could pressure mobile average revenue per user. Additionally, competition within the fixed broadband (FBB) segment is anticipated to stay elevated, with MNOs leveraging FBB-mobile packages to retain customers.
RHB Research pointed to enterprise solutions as the primary driver of 5G demand, given the limited retail use cases currently available. Notable progress has been made in commercialising 5G solutions across various verticals. However, the announcement of U Mobile Sdn Bhd as the second 5G network access provider has raised questions about MNOs' commitments to Digital Nasional Bhd, the continuity of long-term lease agreements, and the financial implications of 5G-related capital expenditures.
The research house suggested that U Mobile could mitigate the financial burden of 5G capital expenditure, estimated at RM3-RM4 billion, by pursuing network collaborations. Shared infrastructure would accelerate site deployments, allowing population coverage targets to be achieved more efficiently.
On the fixed-line side, RHB Research highlighted the robust demand for data centres (DCs), which continues to benefit integrated telcos like TM. The completion of TM's new cable landing station in Morib positions the company to cater to the growing connectivity needs of DCs in southern Klang Valley. TM's joint venture with Singapore Telecommunications Ltd to develop a 64MW artificial intelligence-enabled DC is on track for completion by the fourth quarter of 2026, potentially contributing RM80-RM85 million to TM's earnings annually.
Sector valuations, currently at -1.8 standard deviations below the historical EBITDA mean, reflect ongoing regulatory challenges and competitive risks. However, RHB Research noted TM's core digital infrastructure assets as pivotal to its long-term growth, projecting an earnings compound annual growth rate of 11.7% between FY24 and FY26. Axiata is seen as another strong contender due to earnings recovery and balance sheet improvements, supported by operational enhancements and macroeconomic tailwinds.
CelcomDigi, meanwhile, remains a value play with the potential for a re-rating as stronger merger synergies materialise in FY25-FY26. Risks to the sector include heightened competition, weaker-than-expected earnings, and potential regulatory setbacks.
