RAM Ratings has reaffirmed the AAA/Stable/P1 ratings of Telekom Malaysia Berhad’s (TM or the Group) Sukuk Programmes as well as the AAA/Stable rating of Hijrah Pertama Berhad’s (Hijrah Pertama) Sukuk.

Published on 18 May 2015

Instrument	Rating Action	Rating(s)
Telekom Malaysia Berhad
Islamic Commercial Papers Programme (2013/2020) and Islamic Medium-Term Notes Programme (2013/2033)  with a combined nominal value of up to RM3 billion	Reaffirmed	AAA/Stable/P1
Islamic Commercial Papers Programme and Islamic Medium-Term Notes Programme with a combined aggregate nominal value of up to RM2 billion (2011/2026)	Reaffirmed	AAA/Stable/P1
Hijrah Pertama Berhad
RM2,925 million Islamic Stapled Income Securities (2007/2018) (ISIS)	Reaffirmed	AAA/Stable

TM’s ratings continue to be anchored by its dominance of the fixed-line telephony market in Malaysia as well as its sound financial performance and debt-servicing indicators. A high likelihood of extraordinary government support for the Group is also a positive under our methodology for government-linked entities. As at end-2014, TM commanded almost 99% of the fixed-line subscriber base, with 3.53 million subscribers. The Group further boasted 2.23 million fixed-broadband users, 729,000 of which were high-speed broadband (HSBB) users, registering a take-up rate of 45% (1.62 million households have access to UniFi).
The recent award of the HSBB2 and suburban broadband (SUBB) projects amounting to RM3.4 billion to TM will further solidify the heavyweight’s market position. “Fixed-broadband growth prospects remain encouraging, given that the fixed-broadband population penetration rate in Malaysia stood at a low 8.2% as at end-2013 compared to peers such as Singapore, Hong Kong, Korea and Japan,” observes Davinder Kaur Gill, RAM’s Co-Head of Infrastructure and Utilities Ratings. Additionally, HSBB2 and SUBB rollout-related capex is expected to be shared by the Government and TM.
Elsewhere, the Government’s firm push for lower prices and faster broadband speeds will compel TM to continuously revisit its cost management policies. “While lower broadband pricing may crimp profit margins in the near term, it is by and large expected to be counterbalanced by higher usage levels,” Davinder adds.
TM re-entered the mobile space via its acquisition of a 55.3%-stake in Packet One Network Sdn Bhd (P1) last year, allowing the Group to cross-sell and bundle fixed and mobile offerings. To this end, TM’s grit in the wireless space has yet to be tested as news of its pricing, rollout and customer acquisition strategies in this arena have yet to be announced.
Meanwhile, the Group’s financials are characterised by stable earnings and healthy debt-coverage levels. As TM takes on large-scale projects over the next few years – including the rollout of the P1 Long-Term Evolution programme and that of the HSBB2, SUBB and Sistem Kabel Rakyat 1 Malaysia projects – we anticipate capex trending upwards. Despite the higher capex, the Group’s financial metrics are expected to remain intact, supported by increased earnings from a wider fibre network and an enhanced copper network. Apart from that, the dividend reinvestment scheme, which may continue in the near to medium term, will allow the Group to reinvest its earnings in future expansion and reduce its reliance on external debt.

Media contact
Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my
Davinder Kaur Gill
(603) 7628 1118
davinder@ram.com.my