CDB: Telecommunications Group Aligns with Consensus Amidst Mixed Segment Performance; ‘Buy’ Rating Reaffirmed

A leading telecommunications group reported its 9MFY25 core profit within consensus expectations, despite falling short of the investment bank’s own projections. The RM1,283mn core profit was significantly impacted by higher-than-expected tax expenses and the absence of a prior-year green tax incentive. While overall service revenue remained flat year-on-year, strong growth in key segments was observed, leading the investment bank to maintain its BUY recommendation.

Performance Review

The group’s 9MFY25 service revenue registered a flat performance year-on-year, holding steady at RM8,076mn. This stability was a result of stronger contributions from the postpaid, fibre, and wholesale segments. Postpaid revenue notably climbed 3.8% to RM3,236mn, driven by an expansion in the higher-value segment and ongoing convergence plan upgrades. The home fibre segment also showed robust growth, with revenue soaring 44.5% to RM185.0mn, attributed to solid subscriber additions. However, this growth was partially fueled by aggressive promotions, which led to ARPU dilution for fibre.

Conversely, the positive momentum was offset by weaker performances in the prepaid and enterprise segments. Prepaid service revenue declined due to a strategic shift away from reliance on one-time rotational SIM business. Similarly, the enterprise segment saw lower service revenue, mainly from a reduction in bulk SMS volume.

Despite the mixed revenue performance, the group’s Earnings Before Interest and Taxes (EBIT) increased 4.0% to RM2,080mn. This improvement was largely due to lower depreciation and amortisation charges, following the decommissioning of impaired network and right-of-use assets. However, core profit for the period decreased by 4.1% year-on-year, primarily because of the absence of a green tax incentive that had reduced tax expenses in the previous year.

For the third quarter (3QFY25) specifically, service revenue grew 1.3% quarter-on-quarter to RM2,729mn, boosted by healthy consumer business. Nevertheless, core profit for 3QFY25 fell 6.8% quarter-on-quarter to RM409mn, mainly due to higher depreciation and amortisation charges. The group’s total subscriber base also saw a slight decline of 118k quarter-on-quarter, primarily in prepaid subscribers.

Outlook and Forecast Adjustments

Following the 9MFY25 results, the investment bank revised down its FY25 earnings forecasts by 6.0% to account for the higher tax expenses. Management’s guidance for FY25 remains largely unchanged, anticipating low single-digit growth in both service revenue and EBIT. The capital expenditure-to-total revenue ratio is expected to be between 14% and 16%.

The ongoing integration exercise is reported to be on track for completion by 2026. This initiative is expected to unlock significant merger synergies, aiming to deliver annual cost savings of approximately RM700mn to RM800mn post-2027.