UOBKH expects contraction in Malaysia telco sector, prefers Time Dotcom

UOB Kay Hian (UOBKH) expects Malaysia’s telecommunications sector to see some year-on-year contraction as single-digit service revenue growth gets dragged by higher depreciation and a one-off prosperity tax in 2022.

In a report on Monday (Sep 12), the research team trimmed its earnings estimate for the sector by 2 per cent for FY2022 and 3 per cent for FY2023. It also projected a contraction of 5 per cent year on year for Malaysian telcos.

This came after Q2 2022 results, which were broadly in line except for Telekom Malaysia which beat expectations following a “robust” top line and good cost discipline. Digi, meanwhile, fell below expectations due to weakness in the prepaid segment, higher finance costs and tax. 

UOBKH’s top pick is Time Dotcom for its “good growth prospects”. It has reiterated “buy” on the stock and has a target price of RM5.20, implying a potential upside of 9.7 per cent from the counter’s last trading price of RM4.74 as at 10.48 am on Monday. 

UOBKH said the stock offers a 3-year earnings compound annual growth rate of 12 per cent, underpinned by strong home fibre sales and contributions from its data centres segment. This comes as Time Dotcom looks to expand its Phase 2 Cyberjaya data centre.

The research team believes fixed-line players will continue to show strong top-line and bottom-line growth due to underlying demand for home broadband services and the expansion of fibre footprint by operators.

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It has maintained its “market weight” call on the sector as a whole, given a lack of key rerating catalysts.