The Malaysian telecoms sector is expected to see significant profit growth this year, with core net profit forecasted to rise by 26%, compared to just 5% last year, according to analysts. This growth is attributed to improvements in earnings before interest, taxes, depreciation, and amortisation (EBITDA), expected to grow by 3% in 2023 and 4% in 2024.
CelcomDigi Leads the Charge
CelcomDigi Bhd is anticipated to lead the sector’s growth, with its net profit projected to surge by 50% this year. This increase is driven by the company’s successful merger synergies, aligned with its RM8 billion net present value synergy guidance.
CelcomDigi’s contribution to sectorial earnings is further amplified through Axiata Group Bhd’s associate income line. Analysts at Maybank Investment Bank Research (Maybank IB Research) have identified CelcomDigi as their top pick, with a “buy” recommendation and a target price of RM4.50 per share.
Challenges Persist Despite Growth
Despite the positive outlook for CelcomDigi, the overall telecoms sector faces ongoing challenges:
- Regulatory Uncertainty: Concerns surrounding Malaysia’s second 5G network remain unresolved, adding capital expenditure risks for mobile operators.
- Intense Competition: Elevated competition in the fixed broadband market continues to pressure profits.
These risks have already influenced share prices for mobile telcos, with Maybank IB Research maintaining a “neutral” stance on the sector.
Other Key Players
Maybank IB Research also issued “buy” ratings for:
- Axiata Group Bhd: Anticipating earnings recovery and improved balance sheet strength.
- Telekom Malaysia Bhd (TM): Recognised for cost optimisation efforts and potential gains from its data-centre ventures.
Both TM and TIME Dotcom Bhd (TDC) remain strong in fixed broadband subscriber acquisitions, but intense competition could erode average revenue per user (ARPU), potentially reducing net profit forecasts for TM by 19% and TDC by 9%.
The Future of Malaysia’s Telecom Industry
The telecoms sector is likely to face sustained challenges as competition intensifies and regulatory demands grow. Revenue stagnation may push telcos to focus on cost optimisation and mergers to preserve earnings.
Companies positioned to optimise costs include:
- TM: With potential savings in high staff costs.
- Axiata: By managing holding company and finance costs.
- CelcomDigi: By realising further merger synergies.
Conclusion
While the sector faces a challenging landscape, CelcomDigi’s strong performance and potential from data-centre ventures provide some optimism. However, navigating competition, regulatory uncertainties, and cost pressures will be critical for the long-term success of Malaysia’s telecom players.
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