CDB: Telecom Giant Delivers Core Earnings Growth Despite Margin Contraction
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A prominent telecom operator reported a 9.4% year-on-year increase in its 2025 core net profit, reaching RM1.5bn. While the results were in line with the investment bank’s expectations, they fell short of broader consensus estimates. The company also declared a final interim dividend per share of 3.6 sen.
Performance Review
The growth in core net profit was underpinned by a 2.2% year-on-year rise in 2025 revenue to RM13bn. This was largely driven by robust device bundle sales and ongoing postpaid re-contracting initiatives. Postpaid subscriber numbers saw a 5.3% increase, alongside a significant 52.4% surge in home fibre subscribers, which more than offset a 4.5% decline in prepaid subscribers. However, the company’s EBITDA margin experienced a 3.5 percentage point contraction to 42.3%, primarily due to higher device costs, increased traffic costs from rising data usage, and 5G-related expenses.
Operational Highlights
The fourth quarter of 2025 presented a mixed operational picture. Sequentially, postpaid subscribers grew modestly by 1.3%, while prepaid subscribers saw a slight decrease of 0.5%. Home fibre segments demonstrated strong growth, expanding 9.6% quarter-on-quarter, driven by robust demand for its converged plans. Overall service revenue increased 3.8% quarter-on-quarter to RM2.8bn. Looking ahead to 2026, management anticipates low single-digit service revenue growth, low single-digit EBIT growth, and a capital expenditure intensity of 12-13%.
Analyst Outlook and Recommendation
PhillipCapital introduced a 2028 earnings forecast of RM2.1bn, representing a 7.4% year-on-year increase. The bank views the company favorably due to its strong market leadership as Malaysia’s largest mobile operator and the potential for significant value creation from its RM8bn post-merger synergy target, supported by ongoing integration efforts. Nevertheless, the analyst remains cautious regarding limited ARPU upside in a saturated market and slower-than-expected 5G monetization. Upside risks include stronger ARPU growth, while downside risks encompass tougher competition and slower synergy realization. Reflecting this balanced view, PhillipCapital maintained its HOLD rating with an unchanged 12-month target price of RM3.47.
