Published on 18 May 2015
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.
|
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.
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