Maybank IB Research said CelcomDigi's net profit is projected to rise by 50% this year.
PETALING JAYA: The core net profit growth for the local telecoms sector is expected to surge to 26% this year from 5% last year, according to analysts.
This would come on the back of earnings before interest, taxes, depreciation and amortisation growth of 3% for this year and 4% for 2024.
Maybank Investment Bank Research (Maybank IB Research) said CelcomDigi Bhd is expected to drive the strong sectorial net profit growth this year.
Its net profit is projected to rise by 50% this year as merger synergies manifest more meaningfully, in line with its initial synergy guidance of RM8bil net present value.
CelcomDigi is also represented through Axiata Group Bhd
’s associate income line, thus its contribution to sectorial earnings is amplified.
The research house said CelomDigi is its top pick in the sector with a “buy” call and a target price of RM4.50 a share.
However, the it added that the overall outlook for the sector remained challenging, as it continued to be plagued by extended uncertainty over the country’s second 5G network and elevated competition in fixed broadband.
Nevertheless, the risks are somewhat priced-in, given the share price-corrections for mobile telcos in 2024.
The research house said it was maintaining its “neutral” stance on the sector.
Besides CelcomDigi, it also has “buy” ratings on Axiata, for which it expects earnings recovery and balance sheet repair, as well as Telekom Malaysia Bhd (TM) for its cost optimisation with data-centre exposure.
As for 5G, mobile operators could continue to be plagued by regulatory uncertainty and capital-expenditure risk for 5G this year.
U Mobile Sdn Bhd is unlikely to deploy the second 5G network by itself and could potentially collaborate with either CelcomDigi or Maxis Bhd and thus raise capex concerns for either.
It is unclear if the present access fees for Digital Nasional Bhd, owner of the first 5G network, would be revised as part of the process of setting up the second 5G network.
Maybank IB Research also expects competition in fixed broadband to remain elevated in 2025 as mobile players continue to use fixed broadband as a tool for subscriber retention.
Both TM and TIME Dotcom Bhd (TDC) have thus far held their ground in subscriber acquisitions, but the overall competitive situation remains fluid.
The research house said the erosion of RM10 per month in average revenue per user could lower its net profit forecasts for TM and TDC by 19% and 9%, respectively, this year.
Both fixed-line incumbents continue to have exposure to the data-centre theme, mainly through ownership as connectivity contribution remains insignificant for now, the research house said.
The successful delivery of its new data-centre venture would be a potential rerating catalyst for TM, it added.
In the longer term, Maybank IB Research said it believes the telecoms industry would likely continue to be a long-drawn race to the bottom as competition hampers monetisation and regulatory demands intensify.
As revenue stagnates, telcos can only rely on optimising costs, including engaging in mergers, to preserve earnings.
The telcos with headroom to optimise costs are TM (high staff costs), Axiata (holding company and finance costs) and CelcomDigi (realisation of merger synergies).
