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| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The telecommunications sector demonstrated a mixed but largely resilient performance in the third quarter of 2025, with several key players exceeding financial expectations. This positive momentum was primarily driven by strong cost efficiencies across the board. While fixed-line operators consistently outperformed, the mobile segment faced softer earnings, contributing to a marginal overall industry revenue increase.
Performance Highlights
Aggregate sector core earnings, encompassing fixed telcos and major mobile network operators, saw a healthy 7.1% quarter-on-quarter growth. This robust performance was largely propelled by a significant 21% quarter-on-quarter increase in fixed-line earnings, which effectively counterbalanced a 2.2% decline in mobile earnings. Companies like Maxis and Time dotCom (TDC) notably surpassed their earnings estimates, attributing their success to diligent cost optimization strategies. In contrast, OCK Group reported results below expectations, impacted by sluggish contracting revenues and a stronger Malaysian Ringgit. Axiata, Telekom Malaysia (TM), and CelcomDigi (CDB) generally reported earnings in line with projections, after adjusting for one-off items.
Strategic Initiatives and Future Outlook
The emphasis on cost management remains a critical theme across the sector. Maxis has responded to its stronger nine-month results by raising its EBIT guidance to a “mid-single digit” growth, indicating further scope for cost optimization. TDC, following a special interim dividend surprise, is also actively seeking to optimize its under-leveraged balance sheet. For fixed-line telcos, the underlying positive earnings trend is expected to continue into 4Q25 and FY26, supported by structural drivers such as wholesale, data centers, and enterprise segments. However, TM has removed its headline EBIT guidance, anticipating higher manpower costs in 4Q25 due to a voluntary separation exercise, though a special dividend is not ruled out given its strong net debt/EBITDA position.
Challenges and Risks
Looking ahead, the impending Digital Nasional Berhad (DNB) shareholding closure poses a notable challenge for mobile network operators. Upon completion by end-January 2026, Maxis and CDB are expected to equity account for DNB’s losses, potentially diluting their FY26F core earnings by 9-10%. Key downside risks for the sector include intensified competition, potential for weaker-than-expected earnings and margins, adverse effects of foreign exchange rate changes, and evolving regulatory landscapes. Despite these headwinds, strategic adjustments and ongoing cost efficiencies are seen as crucial for navigating the market and driving continued growth for certain segments.
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