Overview of Malaysia’s Telecom Sector

Malaysia’s telecom sector enters 2025 with a cautious outlook, facing challenges like 5G network uncertainties and rising competition in fixed broadband. However, share price corrections in 2024 indicate that some risks have already been priced in. Analysts maintain a NEUTRAL stance on the sector while highlighting several key players—CelcomDigi, Maxis, Telekom Malaysia, Axiata, and TIME dotCom. Below, we take a deep dive into the performance and prospects of each listed company.

CelcomDigi: Driving Sectorial Growth

CelcomDigi stands out as the top pick for 2025. Following the 2022 merger between Celcom and Digi, the company is poised to realize significant synergies, projected to contribute MYR8 billion in net present value (NPV). Analysts forecast a 50% jump in net profit for FY25F, supported by cost reductions and network integration efforts—already 70% complete by the end of 2024 and expected to hit 75% by year-end.

Despite a slight dip in service revenue (-0.6% YoY) during 9M24 due to post-merger churn, CelcomDigi is aggressively promoting bundled services like fiber broadband to retain subscribers. Positioned as a key contributor to Axiata’s associate income, CelcomDigi amplifies its impact on the sector’s earnings.

• Recommendation: BUY
• Current Price: MYR3.65
• Target Price: MYR4.50
• Upside: 26%

Maxis: Stable but Constrained

Maxis has demonstrated steady revenue growth, gaining market share in 2024 (+3.2% YoY in 9M24). Postpaid services account for 60% of its revenue, aided by data consumption trends exceeding 30GB/month per user. However, the company faces ongoing regulatory uncertainties tied to 5G access fees and lacks strong catalysts for re-rating in the near term.

Maxis also aggressively competes in the fixed broadband space, leveraging its mobile network for bundling promotions. Yet, challenges like capped wholesale rates and competitive pressure limit its ability to expand margins.

• Recommendation: HOLD
• Current Price: MYR3.65
• Target Price: MYR3.70
• Upside: 6%

Telekom Malaysia (TM): A Data Center Visionary

Telekom Malaysia was the best-performing telco stock in 2024, thanks to enthusiasm for its data center ventures. TM has partnered with Nxera (Singtel’s data center arm) to develop hyperscale data centers in Johor. Phase 1, featuring 64MW capacity and liquid-cooling technology, is scheduled for completion in 2026. With an estimated annual income accretion of MYR65-100m and a 10-sen equity value boost, TM is well-positioned for long-term growth.

Although TM faces intense competition in home fiber broadband, its bundling efforts—including Netflix partnerships—have helped retain subscribers. Analysts remain optimistic about its ability to capitalize on Malaysia’s data center boom.

• Recommendation: BUY
• Current Price: MYR6.59
• Target Price: MYR7.50
• Upside: 17%

Axiata: Recovery and Growth Opportunities

Axiata offers a favorable risk-reward profile, with improving earnings and balance sheet repair as key catalysts. The company’s 33% stake in CelcomDigi further amplifies its contribution to sectorial profits. Ongoing corporate exercises, including mergers at XL and fundraising activities at edotco and Linknet, add to its growth prospects.

Despite challenges like currency fluctuations affecting overseas earnings, Axiata remains committed to delivering a minimum 10-sen annual dividend.

• Recommendation: BUY
• Current Price: MYR2.41
• Target Price: MYR3.20
• Upside: 36%

TIME dotCom (TDC): Lacking Immediate Catalysts

TIME dotCom has been a steady player in the fiber broadband market. However, with earnings growth tapering off and no clear timeline for new ventures, the company faces a lack of immediate re-rating catalysts. Its divestment from the data center business has also limited growth opportunities.

That said, TDC’s relatively attractive dividend yield of 5% provides some downside protection. The company continues to focus on expanding its fiber footprint while remaining opportunistic about future ventures.

• Recommendation: HOLD
• Current Price: MYR4.70
• Target Price: MYR5.10
• Upside: 14%

Key Risks to Watch

Investors should be aware of several risk factors that could impact the telecom sector:

• Competitive Risks: Price wars could erode profitability, particularly in the broadband and mobile segments.
• Regulatory Risks: Changes in taxation, spectrum allocation, or pricing regulations could affect earnings forecasts.
• 5G Uncertainty: Delays in the setup of the second 5G network and related lease payments remain a concern.
• Integration Risks: Delays in CelcomDigi’s merger synergies could impact projected earnings growth.
• External Factors: Currency fluctuations pose additional risks to Axiata’s overseas earnings.