UOB Kay Hian
Date of Report: 9 June 2025

Malaysia Telecommunications Sector 1Q25: Earnings Resilient Amid Fierce Mobile Competition – Top Picks, Risks, and Outlook

Executive Summary

The Malaysian telecommunications sector reported a mixed first quarter for 2025, with sector earnings rising 5% quarter-on-quarter but declining 3% year-on-year. The industry faces ongoing pressure from intense mobile competition, especially in prepaid offerings, yet remains buoyed by stable postpaid revenues, robust enterprise demand, and disciplined cost management. UOB Kay Hian maintains a MARKET WEIGHT stance, highlighting Axiata, CelcomDigi, and TIME dotCom as top picks. Key catalysts include potential asset monetisation and synergistic savings from recent mergers.

Sector Overview: 1Q25 Results and Key Trends

• Sector earnings: Rose 5% QoQ, down 3% YoY to RM1,443m
• Competition: Prepaid segment pressured by unlimited data plans, leading to ARPU declines for CelcomDigi and Maxis
• Enterprise & Broadband: Strong demand for digital solutions and home fibre, underpinned by fixed-mobile convergence and bundling rebates
• Cost control: Ongoing discipline helped buffer earnings against revenue headwinds
• Key risks: Shareholding uncertainty at Digital Nasional Berhad (DNB), competitive threats to fixed-line operators, and macroeconomic headwinds

Financial Highlights: 1Q25 Core Net Profit

Market Outlook and Key Developments

• 2025 sector earnings forecast trimmed by 7%: Weaker Axiata performance was the main drag.
• Upcoming catalysts:
  • EDOTCO monetisation and U Mobile’s 5G capex
  • Potential stake sale of MOF Inc.’s 40% equity in DNB
  • Network expansion by TM and TIME, with a focus on single dwelling units and secondary regional markets
  • Synergistic savings from CelcomDigi’s merger, with full benefits expected by 2027
• TM-UMobile 5G Backhaul Contract: TM signed a 10-year, RM2.4b partnership to support Malaysia’s second 5G network, expected to contribute 2% to TM’s annual revenue and 1% to net profit.

Peer Comparison: Valuation and Dividend Yield

Top Picks: In-Depth Company Analysis

Axiata Group (AXIATA MK) – BUY, Target Price: RM2.50

• 1Q25 net profit: RM123m (-27.3% QoQ, -17.7% YoY), below expectations due to ringgit appreciation, weak top-line, and earnings dilution from the XLSmart merger.
• Strategic priorities: Targeting net debt/EBITDA of 2.5x by end-2026, with further deleveraging supported by proceeds from Sinarmas (RM400m in FY25, RM500m in FY26).
• Upcoming catalysts: Stronger operating company (opco) performance, narrowed Link Net losses, recapitalisation by potential investors, and possible EDOTCO listing for price discovery.
• Dividend outlook: Management is expected to declare a dividend per share (DPS) of 10 sen for 2025, translating to a 5% yield.

CelcomDigi (CDB MK) – BUY, Target Price: RM4.30

• 1Q25 net profit: RM429.7m (+6.2% QoQ, -9.9% YoY), in line with expectations.
• Merger synergies: Projected RM800m annual cost savings by 2027 after absorbing elevated merger costs in 2024; three-year earnings CAGR forecast at 15% (2024-27).
• Re-rating potential: Monetisation of tower assets (via sale to EDOTCO) and potential for special dividends.
• Dividend outlook: Attractive yield, with expectations of additional payout from asset sales.

TIME dotCom (TDC MK) – BUY, Target Price: RM6.00

• 1Q25 net profit: RM117.9m (-1.3% QoQ, +6.7% YoY), in line with expectations.
• Growth strategy: Ambitious plan to add 250,000–300,000 home passes annually, with strong penetration in both greenfield and brownfield areas over the next 2–3 years.
• Balance sheet: Ongoing optimisation, with selective leverage seen as potentially more optimal going forward.
• Valuation: At target price, trades at 14.2x 2025 EV/EBITDA (+2SD from mean). Offers a sector-leading 6.5% dividend yield.

Maxis (MAXIS MK) – BUY, Target Price: RM4.20

• 1Q25 net profit: RM371.0m (+15.6% QoQ, +5.1% YoY), in line with expectations.
• Broadband performance: Added 3,000 home subscribers, with ARPU rising to RM111.10/month (from RM109.20 in 4Q24), aided by effective bundle offerings.
• Dividend yield: 4.9% for FY25F, rising to 5.2% in FY26F.

Telekom Malaysia (TM) – HOLD, Target Price: RM7.00

• 1Q25 net profit: RM401.2m (+11.7% QoQ, +1.0% YoY), in line with expectations.
• Key win: Secured a RM2.4b, 10-year contract with UMobile for 5G backhaul services, contributing 2% to revenue and 1% to net profit annually.
• Home fibre: Added 6,000 Unifi subscribers, though aggressive bundling led to a 5% QoQ ARPU decline to RM127/month.
• Dividend yield: 4.8% for FY25F, 5.0% for FY26F.

Home Fibre & Mobile Market Dynamics

• ARPU under pressure: CelcomDigi’s home fibre ARPU dropped to RM97/month (from RM107 in 4Q24) due to competitive bundling. Maxis’s ARPU rose slightly, while TM’s ARPU dipped to RM127/month.
• TIME growth: 3% QoQ and 12% YoY subscriber growth, with a 3% QoQ revenue jump thanks to higher household penetration.
• Fixed-mobile convergence: Remains a key driver for home subscriber growth across major operators.

Digital Nasional Berhad (DNB) Shareholding Changes

• CelcomDigi, Maxis, and YTL each acquired 19.44% of DNB, with MOF Inc. retaining a 41.67% stake following U Mobile’s exit.
• CelcomDigi and Maxis each acquired 33.33% of UMobile’s DNB shares (100,000 ordinary shares at RM1.00/share), raising their effective DNB shareholding to 19.44% per entity.
• YTL mirrored this acquisition, while MOF Inc. secured the remaining 1% stake, consolidating its position.

Investment Risks and Sector Outlook

• Risks:
  • Erosion of fixed-line operator earnings due to heightened competition
  • Lower-than-expected cost savings from the CelcomDigi merger
  • Prolonged uncertainty regarding DNB’s shareholding
  • Macroeconomic downturns shrinking consumer spending and sector revenues
• Valuation: The sector currently trades at a +1SD EV/EBITDA of 7x, reflecting defensive buying interest and stable fundamentals.
• Dividend theme: Average sector yield of 5% supported by good cost control and moderate capex intensity.
• Share performance: The sector outperformed the FBMKLCI by 8% in 1H25, mainly due to defensive interest in TIME and CelcomDigi.

Conclusion: Opportunities Amid Uncertainty

While Malaysia’s telco sector faces ongoing competition and regulatory changes, disciplined cost control, network investments, and potential asset monetisation underpin a resilient outlook. Investors should watch for further updates on DNB’s shareholding, merger synergy realisation, and 5G network expansion as key catalysts for sector re-rating. Top picks remain Axiata, CelcomDigi, and TIME dotCom, all offering attractive dividend yields and potential for value creation in the evolving telecom landscape.