UOB Kay Hian
Date of Report: 30 April 2025

Malaysia Telecommunications Sector: Defensive Growth and Attractive Yields Amid Rational Competition

Sector Overview: Outperformance and Resilient Growth

In 2025, Malaysia’s telecommunications sector has proven itself a defensive bet, outperforming the broader FBMKLCI by 8% year-to-date. This solid performance comes amid risk-off sentiment and global tariff uncertainties, making telcos a preferred choice for investors seeking stability and reliable dividends. The sector’s focus on profitability, cash flow, and rational competition has supported robust earnings. Dividend yields are forecasted to exceed the market average, reaching about 5%, with sector earnings expected to grow by 4% in 2025 and 6% in 2026.
Key highlights include:

• TIME posted a stellar 18% outperformance after a higher-than-expected special dividend for 4Q24.
• Telekom Malaysia (TM) outperformed by 10%.
• CelcomDigi and Maxis both saw positive performances, up 12% and 7%, respectively.
• Axiata was the only major underperformer, declining 18% due to the earnings-dilutive merger between XL Axiata and SmartFren in Indonesia.

Market Dynamics: Rational Competition and Strong Cash Flow

Recent channel checks indicate a return to rational competition, with telcos prioritizing profitability and steady cash flows. Notable trends shaping the sector:

• Continued migration from prepaid to postpaid plans.
• Bundling of home fibre and additional products (e.g., Maxis’ home solar solutions) to reduce churn.
• Prepaid competition remains intense, but not more aggressive than in the previous quarter.
• Lower capex guidance as Malaysia transitions to a dual 5G wholesale network approach.

This disciplined approach underpins the sector’s ability to maintain an attractive average dividend yield of 5%, above the estimated market yield of 4%.

Key Sector Events and Catalysts in 2025

Investors should monitor several significant developments in the first half of 2025:

• edotco is set to benefit from U Mobile’s capex for nationwide 5G rollout.
• Higher 5G access fees for CelcomDigi and Maxis.
• Gradual network expansion by TM and TIME, targeting secondary regional markets and single-dwelling units.
• Resolution of the shareholding structure for Digital Nasional Berhad (DNB), including the potential sale of the Ministry of Finance’s (MOF) 30% stake.
• Potential monetisation of Axiata’s 63% stake in edotco.

Dual Wholesale Network (DWN): U Mobile’s Strategic 5G Expansion

U Mobile has received the official award from MCMC to build Malaysia’s second 5G network. The company has partnered with Huawei (West Malaysia) and ZTE (East Malaysia) for the deployment. U Mobile plans to use a mix of internal funds, bank and vendor financing, and IPO proceeds to fund capex, projected to be around RM1 billion over the next 2-3 years.

Sector Ratings and Top Picks

UOB Kay Hian maintains a MARKET WEIGHT rating for the sector, citing stable operating parameters, good cost discipline, and relatively benign capex intensity as drivers for an average dividend yield of 5%. The unresolved DNB shareholding structure and the potential exit of MOF from DNB remain sources of uncertainty.
Top Picks:

• Axiata
• CelcomDigi
• TIME

Peer Comparison Table

Company Deep Dives and Investment Highlights

Axiata Group

• Recommendation: BUY (Target Price: RM2.50)
• 2025F EV/EBITDA: 3.9x (below 5-year mean of 4.1x)
• Three-year Earnings CAGR (2025-27F): 14%
• Potential catalysts include stronger performance from operating companies, reduced Link Net losses, future recapitalisation by investors, and a possible listing of edotco for better price discovery.

Despite its recent underperformance due to the XL Axiata-SmartFren merger, Axiata remains a value play with a strong re-rating potential.

CelcomDigi

• Recommendation: BUY (Target Price: RM4.30)
• 2025F EV/EBITDA: 9.3x
• Three-year Earnings CAGR (2025-27F): 6%
• Merger synergies are expected to generate RM800m annual cost savings by 2027.
• Key catalysts include the monetisation of tower assets (potential sale to edotco) and the possibility of special dividends.

CelcomDigi is well positioned to benefit from the sector’s rationalisation and cost-saving initiatives.

TIME dotCom

• Recommendation: BUY (Target Price: RM6.00, DCF-based, WACC: 7%, terminal growth: 4%)
• 2025F EV/EBITDA: 14.1x (+2SD from mean)
• Three-year Earnings CAGR (2025-27F): 9%
• TIME commands a 15-17% share of household coverage and aims to expand by 200,000-250,000 home passes per year, leveraging steady penetration in both greenfield and brownfield areas.
• TIME delivered a substantial 18% outperformance after a special dividend in 4Q24.

With its aggressive expansion targets and high dividend yield, TIME stands out as a growth and income play.

Maxis

• Recommendation: BUY (Target Price: RM4.20)
• 2025F EV/EBITDA: 8.6x
• Maxis continues to focus on bundling home fibre and new offerings, such as home solar solutions, to enhance customer retention and lower churn rates.

Maxis remains competitive in the wireless segment with a stable outlook.

Telekom Malaysia (TM)

• Recommendation: HOLD (Target Price: RM7.00)
• 2025F EV/EBITDA: 5.6x
• TM’s growth is driven by gradual network expansion, targeting secondary regional markets and single-dwelling units.

TM’s stable earnings and gradual expansion support its market position, though upside may be limited compared to peers.

Digital Nasional Berhad (DNB): Shareholding and Financial Exposure

The dual wholesale 5G network model is progressing, with the next major step being the MOF’s exit from DNB. The current DNB shareholding structure is as follows:

Government funding for DNB included a RM500m equity injection in 2021 and a RM450m shareholder loan in May 2023. By 2024, DNB had spent RM5 billion on 5G network development and maintenance.

Impact of 5G Wholesale Fees on Earnings in 2025

• CelcomDigi: 2025F net profit RM2,149m; 5G wholesale fee RM576m (impact: -20%)
• Maxis: 2025F net profit RM1,501m; 5G wholesale fee RM360m (impact: -18%)
• TM: 2025F net profit RM1,706m; 5G wholesale fee RM288m (impact: -13%)

Risks to Watch

• Earnings erosion for fixed-line operators from increased competition.
• Lower-than-expected synergistic savings from the CelcomDigi merger.
• Economic downturn shrinking customer wallets and sector service revenue.
• Prolonged uncertainty over DNB’s shareholding structure and MOF’s exit.

Conclusion: Stable Growth, Attractive Dividends, and Key Catalysts Ahead

Malaysia’s telecommunications sector is poised for steady growth, thanks to rational competition, disciplined spending, and strategic network expansion. Leading names—Axiata, CelcomDigi, and TIME—offer compelling opportunities for growth and income, backed by strong fundamentals and sector-specific catalysts. However, investors should keep a close eye on sector risks, especially around DNB’s evolving structure and the impact of 5G costs on future profitability.