Published on 30 December 2015RAM Ratings has reaffirmed the AA3/Stable rating of BGSM Management Sdn Bhd’s (BGSM Management or the Company) Islamic Medium-Term Note Programme of up to RM10 billion in nominal value (2013/2043). The reaffirmation of the rating is premised on Maxis Berhad’s (Maxis) well-established position as one of the leading telecommunication companies (telco) in the country. RAM’s analysis of BGSM Management continues to focus on the credit fundamentals of Maxis, given that the latter is the Company’s only source of cashflow to service its financial obligations under the IMTN Programme. Furthermore, the issue rating also takes into account structural subordination as Maxis has considerable priority debt.
Despite heightened competition, Maxis’ restructuring efforts and new product offerings are beginning to bear some fruits in its last 3 financial quarters ending September 2015. Maxis has regained its leadership in terms of subscribers base in the beginning of this year with 35.2% of the total 37 million mobile subscribers as at end-September 2015. Maxis is also the largest mobile operator by revenue and profitability, commanding 37.5% of the total RM17.14 billion of total revenue registered by incumbents and 41.1% of cumulative RM7.71 billion of operating profit before depreciation, interest and tax (OPBDIT) for 9M 2015. Further, Maxis maintained its sturdy cashflow-generating ability, underpinned by its strong profitability, with an OPBDIT margin of 48% in 9M FY 2015 – the highest among local peers.
Given that the cellular telephony sector is saturated, with a mobile penetration rate of 144.8% (end-June 2015), local telcos are expected to face continuous decelerating subscriber growth, increasing price competition and heavier spending on capex that could further compress their margins. Nonetheless, the mobile-broadband segment still has ample room for growth, in line with the current voice-to-data shift underscored by still-low household and population broadband penetration rates of 70.2% and 68.3% respectively.
While Maxis had lifted its performance and market position in 2015, the sustainability of such progress remains to be seen, in view of the heightened competition in the sector. Going forward, Maxis will continue to prioritise capex which could reduce dividend payouts. We envisage BGSM Management (at group level) to register strong funds from operations debt coverage of 0.23-0.27 times between 2016 and 2018.
Ong Ju Laine
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