This article first appeared in Capital, The Edge Malaysia Weekly on December 15, 2025 - December 21, 2025

OVERWEIGHT (from Neutral)

Telekom Malaysia Bhd

Target price: RM8.50 BUY

HONG LEONG INVESTMENT BANK RESEARCH (DEC 10): The 3Q2025 earnings season broadly extended the trends seen in the previous quarter. Maxis Bhd (KL:MAXIS) outperformed and delivered yet another strong set of numbers on disciplined cost management, tracking roughly 9% ahead of full-year expectations. In contrast, CelcomDiGi’s (KL:CDB) results came in soft due to margin pressure driven by higher 5G wholesale costs and doubtful debt provisions. Fixed-line operators saw the expected seasonal uplift with earnings further supported by a lower effective tax rate this quarter. Overall, Maxis’ share price initially rallied on the results but the gains faded as investors rotated into fixed-line names in recent weeks (also given the expectations of higher dividends in 2026) and reduced mobile exposure amid near-term uncertainties around the Ministry of Finance’s (MoF) put option on Digital Nasional Bhd (DNB).

Underlying operating metrics for the mobile market continue to track well, but uncertainties about DNB’s future post-MoF exit may create near-term share price headwinds for CelcomDiGi and Maxis.

The Malaysian Communications and Multimedia Commission’s decision to award an additional 100MHz of 5G spectrum to DNB under a 15-year assignment in October 2025 highlights the need for greater network capacity and quality to support the combined subscriber base of its major shareholders (CelcomDiGi, Maxis and YTL), as well as other access seekers. In early December, MoF also exercised its put option on DNB and the process is expected to take up to two months to complete. From CelcomDiGi’s recent briefing, we expect greater visibility into the future DNB structure by 1Q26, along with clearer measures to ensure a sustainable long-term business model. Beyond efforts to drive new revenue streams and streamline DNB’s cost structure, CelcomDiGi noted that discussions are ongoing for DNB to leverage mobile operators’ existing infrastructure to unlock operational synergies. In our view, this could set the stage for spectrum neutrality and potentially allow operators to re-farm their current 4G spectrum for 5G over time.

Following our recent upgrade on TIME dotCom Bhd (KL:TIMECOM), we upgrade our sector call to “overweight” (from “neutral”). We favour the attractive risk-reward profile of fixed-line operators for their crucial role in 5G infrastructure and imminent data centre (DC) deployments.

Moreover, both Telekom Malaysia Bhd (KL:TM) and TIME are looking to optimise their underleveraged balance sheets in 2026, which may include upward revisions to dividend policies and special dividend payouts. Accordingly, our top pick for the sector is TM (“buy”, target price: RM8.50), where we see robust balance sheet capacity supporting capital management initiatives in 2026.

We also highlight Axiata Group Bhd (KL:AXIATA) (“buy”, target price: RM3.10) as an event-driven opportunity, where potential asset monetisation catalysts should help narrow the discount to the intrinsic value of its underlying assets. We expect CelcomDiGi and Maxis to face near-term headwinds in share price performance until there is greater clarity regarding DNB.

Target price: RM31.70 ADD

CGS INTERNATIONAL RESEARCH (DEC 9): Hong Leong Bank (KL:HLBANK) is guiding for a plan to partially divest its stake (up to 5%) in its 17.8%-owned associate Bank of Chengdu (BOC). Part of the sale proceeds could be paid out as a special dividend, Hong Leong Bank said. The process would be extended into FY6/27F.

Assuming Hong Leong Bank sells a 5% stake in BOC at the closing price of RMB16.82 per share on Dec 8 or RM2.07 billion, and half of the proceeds are paid out as a special dividend, the special dividend per share would be 47.7 sen, representing an additional yield of 2.2%.

We retain our “add” call on HLB, premised on the potential re-rating catalysts of above-industry loan growth and robust fee income growth. In addition, we see the scope for Hong Leong Bank to further raise its dividend payout ratio from 44.5% in FY25 to 50% to 60% (the range for most banks) in the next two to three years. The potential downside risks would be material deterioration in its loan growth and asset quality. We retain our FY26-FY28F EPS forecasts and DDM-based target price of RM31.70.

Target price: 70 SEN BUY

UOB KAY HIAN RESEARCH (Dec 9): While the tariff cost-sharing arrangements may continue to cap near-term margins, stronger volumes and sticky customer relationships provide underlying earnings resilience over the medium term.

We expect a seasonally softer quarter ahead for VS Industry (KL:VS), followed by a stronger recovery in 2HFY26 as new models ramp up. Trade-diversion tailwinds and potential new MNC wins remain key longer-term re-rating catalysts. As a sensitivity analysis, securing an RM300 million contract at a 3% net margin could boost FY26 earnings by approximately 7%.

VS continues to attract interest from new MNCs, leveraging Malaysia’s entrenched ecosystem. Early-stage discussions are underway with a medical industry collaboration emerging as the most tangible opportunity (the client is reportedly doubling its capacity in Johor Bahru and has positioned VS as a strategic partner). Philippines operations, which serve as a regional diversification for Customer X, are finally poised to see an earnings turnaround following higher orders.

Maintain “buy” with an unchanged target price of 70 sen, based on 16 times FY26F PE. VS is trading at an undemanding 14.3 times FY26F PE and 0.81 times FY26F P/B, below even the MCO trough band of 0.83-0.88 times, offering a margin of safety.

Target price: RM1.55 BUY

RHB RESEARCH (Dec 8): Sports Toto Bhd (KL:SPTOTO) launched a new variation of the 4D game — Toto 4D Fireball — last week with an additional Fireball digit drawn alongside the main 4D draw results. We believe Sports Toto’s latest game can attract punters who prefer higher chances of winning and create a novelty effect translated into a positive uplift in sales per draw — albeit only modestly (if any).

We view the success of SPTOTO’s long-term equity value as remaining dependent on its ability to counter the persistent threat from illegal operators and successfully reverse the generational decline in interest in number forecast operator (NFO) games.

We continue to like SPTOTO for its appealing dividend yields. We make no change to our earnings forecasts, which are currently conservative. Our target remains unchanged at RM1.55, implying a 7.5% FY27F (June) yield with a 2% ESG premium incorporated due to its 3.1 ESG score. Key risks include unfavourable luck factors, government policies and softer-than-expected ticket sales. The illegal NFOs continue to be a key threat to legal operators, given the easy access via digital platforms that the regulated market cannot fully match.

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