Telco Sector Faces Tepid Growth Large Cap Picks Preferred Amid Industry Pressure

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A STOCK-PICKING strategy oriented towards the liquid large caps is favoured given the tepid industry growth prospects and lack of meaningful re rating catalysts.
“We continue to see fixed-line telcos outperforming on structural tailwinds. With the mandatory standard on access pricing (MSAP) up for another review by the year-end, regulatory risk looks to be still a key sector peeve,” said RHB.
We see the tepid industry revenue momentum continuing in the second half of 2025 (2H25) as telcos maintain the affordable connectivity narrative via tactical campaigns. The pressure on industry average revenue per user should stay elevated with rebates offered.
Overall, we believe the rise in 5G wholesale charges and inflation-led operating expense pressures should weigh on industry earnings before interest, tax, depreciation and amortisation (EBITDA) despite the good cost restraint exercised by the multinational corporations (MNO).
We expect Maxis and CDB to exercise their put options to acquire the Ministry of Finance’s 41.7% stake in Digital Nasional Berhad (DNB) by year-end. This would mark the Government’s full exit from DNB with the three MNOs holding an equal 33.3% each.

With a new operating model instituted, a review of the existing 5G wholesale framework is plausible. The MSAP is up for review by end-2025 which could renew concerns again over broadband price competition.
However, based on the previous rhetoric and the already competitive broadband pricing landscape, we think adjustments to access prices would be manageable and rates commercially negotiated.
We think it is possible that the regulator extends the validity of current access prices (2023-2025) while adding 5G wholesale rates into the access list. Meanwhile, press reports indicated that JP2 is set to begin in September utilising a hybrid approach with c.3,000 sites identified nationwide.
We see this and the rollout of the second 5G network benefitting towercos and/or infrastructure providers including OCK Group, Reach-Ten Holdings and Redtone International.
Successive news flow on potential asset monetisation saw AXIATA’s share price recover from multi-year lows in April. We think a 3-9 month window is highly probable for an asset sale to materialise, supported by improving market appetite, waning interest rates and the group’s headline net debt/EBITDA target of 2.5x by end of financial year 2026. — Focus Malaysia

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