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 Sukuk (listed below).

Published on 01 Jun 2017.

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 Sukuk (listed below). The ratings continue to reflect the Group’s strong position as the national fixed-line telephony company and dominant fixed-broadband provider as well as its continued robust financial performance. Given its critical role to the nation and strong relationship with the Government, extraordinary support from the latter is highly likely, based on RAM’s rating methodology for government-linked entities.

As expected, the internet segment became the Group’s largest revenue contributor, thanks to progressive take-ups and the upselling of its fixed-broadband offerings. As at end-March 2017, TM boasted 3.18 million fixed-line subscribers or a 97%-subscriber share, of which 2.37 million were fixed-broadband users. The launching of its mobile service via webe enabled the Group to offer a converged quad-play package (fixed voice, fixed broadband, IPTV and mobile service). Elsewhere, the expansion of its network via the deployment of the High-Speed Broadband 2 (HSBB2) and suburban broadband (SUBB) projects will allow TM to tap into a wider pool of potential customers, which may support its stable subscriber-base accretion.

That said, TM’s earnings face pricing uncertainty in view of provisions of Budget 2017 that push for affordable and accessible broadband coverage. Furthermore, increased LTE coverage by mobile incumbents and the ubiquity of smart phones amid faster-speed connections have led to a consumer preference for higher on-the-go bandwidth, resulting in immense competitive pressure on the Group from wireless-broadband and mobile service providers alike. 

Meanwhile, the ratings continued to be moderated by the Group’s hefty capex requirements. As TM continues to deploy large-scale projects, its capex will remain elevated in 2017, with a capex-to-revenue ratio of 30% before easing from 2018 onwards. As such, we have assumed that the Group will meet its funding requirements via a further debt drawdown, which may weaken its leverage indicators. While TM’s earnings continue to be susceptible to broadband pricing uncertainty and its mobile arm stays loss making, the Group’s financial metrics are expected to remain intact, sustained by the healthy take-up of its fixed-broadband offerings.

Instrument	Rating Action	Ratings
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)	Reaffirmed	AAA/Stable

Analytical contact
Nurhayati Sulaiman
(603) 7628 1040
yati@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my