Telco earnings set to strengthen in second half of 2026

KUALA LUMPUR: Malaysia's telecommunications sector is expected to deliver stronger earnings in the second half of 2026 (2H26), driven by a recovery in mobile revenue, sustained cost savings and higher wholesale contributions.

RHB Research said these factors would help offset rising 5G access charges, although intensifying competition and regulatory uncertainties continued to weigh on the sector's outlook.

The research house maintained its "Neutral" stance on the sector, naming Telekom Malaysia Bhd (TM), CelcomDigi Bhd and OCK Group Bhd as its top picks.

It assigned target prices of RM9.30 for TM, RM3.70 for CelcomDigi and 80 sen for OCK.

RHB Research expects TM's earnings to improve on higher wholesale contributions and a low base in 1H26, following a sizeable write-down of 5G access prepayments in the first quarter.

It also expects TM to benefit from the implementation of the revised Mandatory Standard on Access Pricing, scheduled to begin in the fourth quarter (Q4) of 2026 and likely to be completed by the end of Q1 2027.

TM's earnings could receive a further boost from its multi-operator core network agreement with U Mobile Sdn Bhd, which is expected to generate direct cost savings in financial year 2027 (FY27).

RHB Research said TM was also well-positioned to benefit from growing data centre demand, backed by its extensive fibre network, submarine cable connectivity and domestic data centre assets.

It expects TM's data centre revenue to increase in FY27 and FY28 as utilisation rises at its facilities in Iskandar Puteri and Cyberjaya.

More than 70 per cent of the capacity at TM Nxera's upcoming artificial intelligence data centre with Singtel has been pre-sold ahead of its scheduled commissioning in the fourth quarter of 2026.

On Digital Nasional Bhd (DNB), RHB Research said concerns over additional funding requirements should ease following the completion of its RM5.2 billion debt restructuring exercise.

Nevertheless, greater clarity was still needed on plans to restore DNB's profitability and its future capital expenditure requirements.

Meanwhile, RHB Research said CelcomDigi remained attractive, with integration synergies expected to increase in FY27, supported by operational improvements.

It also favoured OCK as a smaller-cap telecommunications infrastructure player, citing its growing digital business and expanding public-sector presence.

RHB Research said investors could begin pricing in higher regulatory risks ahead of a possible general election in 2027.

Other downside risks include intensifying competition, weaker-than-expected earnings or dividends, and regulatory setbacks.