RAM Ratings reaffirms Telekom’s AAA/P1 sukuk ratings

RAM Ratings has reaffirmed the AAA/Stable/P1 ratings of Telekom Malaysia Berhad’s (TM or the Group) sukuk (as listed below). The Group’s dominance over the local fixed-broadband and fixed-line services and telecommunication industry anchors its ratings. This is reinforced by TM’s critical role and strong relationship with the Government of Malaysia (GoM). Based on RAM’s rating methodology for government-linked entities, the Group is deemed highly likely to benefit from extraordinary support in the event of financial distress.

TM’s revenue shrank across the board in fiscal 2020 amid the pandemic, especially from enterprises and government agencies. Its top line sank 5.2% to RM10.84 bil for the year (RAM’s projection: -5.7%). The Group’s profitability, however, remained unscathed - thanks to ongoing cost-saving measures to boost its operational and procurement efficiencies. As a result, TM’s operating profit before depreciation, interest and tax (OPBDIT) and OPBDIT margin remained intact at a respective RM3.78 bil and 34.90% last year.  

In particular, the Group’s revenue from the corporate and government sectors ebbed 6.4% to RM3.96 bil in fiscal 2020. We expect TM’s 11,000 enterprise clients and 2,000 government customers to keep reining in their spending without any abatement of the pandemic. Given the surge in digital and internet consumption, however, nationwide fixed-broadband subscribers increased 13.7% last year, with unifi adding 332,000 subscribers (+23%). By contrast, Streamyx lost 184,000 subscribers (-25%). Despite this, revenue for unifi still shrank 2.5%, albeit less severe than the 10.8% drop in 2019. This is attributable to its enlarged subscriber base and the reversion of its declining average revenue per user (ARPU) in 4Q 2020. 

Notably, TM is well poised to leverage its vast 600,000 km fibre infrastructure vis-à-vis benefiting from the Jendela and MyDigital initiative by the government as well as the rollout of 5G by Digital Nasional Berhad. The Group will benefit from its expanding fibre coverage over the next two years in terms of coverage as well as from the retail and wholesale perspective. Its fibre footprint currently covers most mobile towers in Malaysia, and will likely help boost 5G capacity as well as latency requirements. There are ample digitisation opportunities, especially with the GoM’s fast-tracking of the digital economy. That said, it will require well-conceptualised products and pricing (including connectivity bundling), market sizing and reach, not to mention partnerships, to fully reap the benefits.

The early redemption of TM’s RM2 bil sukuk in March will have improved its debt-servicing metrics and leverage. We now expect the Group’s three-year average FFODC and adjusted gearing ratio to come in at a respective 0.49 and 0.97 times. Our stressed assumptions take into account slower ARPU dilution, marginally fewer subscribers despite the aggressive fibre rollout under Jendela, and a slightly weaker OPBDIT margin.

In the immediate term, any pressure from the Mandatory Standard on Access Pricing that is being reviewed this year may negatively affect TM. We envisage the aggressive rollout of fibre in line with Jendela and the expansion of the Group’s data centre to require heavy capital outlay. This would bring it to the higher end of TM’s guidance of 14%-18% of its revenue. All said, the Group should be able to rely on savings from its cost optimisation efforts to mitigate such effects while simultaneously expanding its retail, SME and enterprise segments. 

Published on 4 June 2021

Analytical contact

Jack Kwan

(603) 3385 2532

jacki@ram.com.my

Media contact

Padthma Subbiah

(603) 3385 2577

padthma@ram.com.my

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