CDB: Telecommunications Operator Reports Weaker Earnings Amidst Higher Costs, Outlook Remains Cautious

A recent investment bank research report highlights a significant decline in a prominent telecommunications operator’s net profit for the third quarter of fiscal year 2025 (3QFY25). The company recorded a net profit of RM341 million, representing a substantial 22% year-on-year (YoY) decrease. This performance, along with the nine-month FY25 results, fell below expectations, primarily due to escalating costs and increased provisions for expected credit losses.

Performance Review

Despite an overall marginal revenue drop of 1.7% YoY for 3QFY25, service revenue showed resilience with a 1.5% YoY increase. This growth was largely driven by robust contributions from postpaid, home fibre, and enterprise solutions. Postpaid revenue notably rose by 4.2%, supported by an expanding subscriber base and a continued shift towards convergence plans. Conversely, prepaid revenue remained stable, notwithstanding a slight decline in subscriber base attributed to strategic active base management focused on retaining quality subscribers.

The company’s PATAMI (profit after tax and minority interests) for 3QFY25 mirrored the net profit trend, falling 22% YoY. This was predominantly a result of higher traffic-related costs and an elevated provision for expected credit losses. Management indicated its focus on improving the collection process to mitigate the increase in ageing trade receivables. The EBITDA margin also compressed to 42.9%, down from 47.5% in 3QFY24, underscoring the impact of the heightened cost structure.

Future Outlook and Challenges

In the near-term, the research report expresses concerns regarding the viability of Digital Nasional Bhd (DNB) in its pivotal role in deploying Malaysia’s 5G wholesale network. The report anticipates heightened competition by mid-2026, when another major mobile operator is expected to fully roll out its second 5G network. The company’s 19.44% stake and RM350 million investment in DNB, including shareholder advances, also raise questions about potential future funding requirements for the entity, which remains loss-making.

Nevertheless, the long-term fundamentals of the telecommunications operator are believed to remain intact. The network integration and modernisation program is over 90% complete, contributing to improved service quality and increased monthly data usage. The group is on track to achieve significant annualised cost savings of RM700-800 million beyond FY27F, stemming from synergistic merger benefits expected to lead to further cost efficiencies and market share gains. Furthermore, a major shareholder has indicated plans to develop an “artificial intelligence factory” in Malaysia, potentially creating new service opportunities for the operator’s extensive customer base.

Given the mixed financial performance and the cautious outlook, the investment bank has maintained its Neutral rating for the company. The target price has been revised to RM3.80, down from the previous RM4.00, reflecting adjusted earnings forecasts.