PETALING JAYA: The telecommunications sector’s outlook will continue to be supported by resilient demand from both consumers and businesses domestically and regionally.

With the start of phase two of the Pelan Jalinan Digital Negara or Jendela, the wider and efficient coverage would continue to drive demand, said Kenanga Research.

The research house said there was a slight sequential improvement in earnings delivery (which was against its expectations) by the sector in the recently-concluded results season for the second quarter of 2023 (2Q23).

“We view positively the change in the rollout model for 5G services in Malaysia to a more market-driven dual network model, from a monopolistic single wholesale network model,” Kenanga Research said in a report yesterday.

Jendela was launched in September 2020 with the goal of putting in place a robust, high quality and affordable digital connectivity by improving broadband quality and coverage, and providing Internet access in the country.

The research house said Telekom Malaysia (TM) surpassed expectations on higher-than-expected tax credit utilisation, while Axiata Group Bhd's results were disappointing due to higher-than-expected depreciation and funding costs notably from its regional operating companies.

“The telecommunications companies, as a whole, saw resilient top line growth in 2Q23, driven by the reopening of the domestic and regional economies as life returned to normalcy.

“Consumers are embracing digitalisation on affordable and flexible packages and as they increasingly used digital platforms to socialise, look for entertainment and perform tasks.”

Additionally, Kenanga Research said businesses and enterprises are accelerating their digitalisation for sustainable growth.

In terms of operating numbers, the research house said subscribers’ growth saw improvements year-on-year (y-o-y) both regionally and domestically.

Dialog (Sri Lanka) and Robi (Bangladesh), which grew at 3% despite inflationary pressures, boosted Asxiata’s subscription.

Local subscribers for CelcomDigi Bhd and Maxis Bhd saw 3% and 2% uptick, respectively, with CelcomDigi’s subscriptions underpinned by Digi (up by 7%).

“Domestic market average revenue per users (arpu) remained resilient y-o-y (both postpaid and prepaid). Axiata’s blended arpu was mixed with XL and Robi showing improvement y-o-y (up 8% and 18%, respectively) but Dialog and Ncell declined (down 1% and 6%, respectively).

In the broadband subscription, TM was still ahead of the pack in terms of market share followed by Maxis, said Kenanga Research.

It added that both CelcomDigi’s and Maxis’ subscribers surged 25% and 15%, respectively.

“Broadband arpus were still robust but TM might suffer erosion once the revised MSAP is implemented,” Kenanga Research said.The research house added that the return of migrant workers, wider coverage and larger Point of Presence are expected to benefit CelcomDigi.

“The promise of a 80% coverage of populated areas and Jendela will accelerate demand further with players like Axiata and OCK Group Bhd benefiting from the construction, upgrading and fiberisation of towers,” Kenanga Research said.

It maintained an “overweight” call for the sector with top picks being CelcomDigi, Maxis and OCK.

“Valuations are still undemanding as we view positively the change in the rollout model for 5G services in Malaysia to a more market-driven dual network model, from a monopolistic single wholesale network model, wider and efficient coverage and affordable and flexible packages for consumers,” the research house said.