FW: MARC AFFIRMS AA+IS RATING ON CELCOM NETWORKS’ RM5.0 BILLION SUKUK MURABAHAH PROGRAMME; REVISES OUTLOOK TO STABLE

 

 

 

P R E S S  A N N O U N C E M E N T

 

FOR IMMEDIATE RELEASE

 

MARC AFFIRMS AA+_Is RATING ON celcom networks' RM5.0 BILLION SUKUK MURABAHAH PROGRAMME; REVISES OUTLOOK TO STABLE

 

MARC has affirmed its AA+_IS rating on Celcom Networks Sdn Bhd's (CNSB) RM5.0 billion Sukuk Murabahah Programme_. Concurrently, the rating outlook has been revised to stable from negative.

 

CNSB, a wholly-owned subsidiary of Celcom Axiata Berhad (Celcom), provides network telecommunication services to its parent. In assessing CNSB's rating, MARC considers the overall credit profile of the Celcom group given the financial and operational linkages within the group.

 

The revised outlook to stable factors in Celcom's improved credit profile that has benefitted from stronger operating performance and tighter discipline on dividend distribution. Despite facing increasing competitive pressure in a fast saturating market, Celcom has maintained a steady operating profit before interest, tax, depreciation and amortisation (OPBITDA) margin in line with the rating band. The rating affirmation and stable outlook also incorporate MARC's expectation that Celcom will sustain its market share as well as maintain a prudent capex programme and moderate shareholder distribution.

 

Celcom remains a key domestic mobile network operator with a strong operating cash flow (CFO) generating ability, notwithstanding the intense operating environment for domestic telco players. The telco industry has continued to face consolidation and migration from prepaid to postpaid that have led to a decline in the subscriber base for major telco players. For Celcom, its subscriber base contracted by 9.6% y-o-y to 9.5 million, but the decline was offset by higher growth in its average revenue per user (ARPU) to RM84 (postpaid) and RM32 (prepaid) in 2017 (2016: RM78; RM30).

 

The improvement came on the back of a series of measures to improve performance such as streamlining operations, improving sales and distribution channels as well as expanding its 4G network coverage. During the year under review, Celcom has also set up a digital mobile platform, Yoodo to increase its market reach. Although broadband services are the company's next growth driver, MARC expects Celcom to roll out these services in a gradual manner to mitigate the impact on operating margins. 

 

Revenue grew by 1.0% y-o-y to RM6.6 billion on the back of strong data revenue in 2017. The average monthly data usage climbed to 8.5GB at end-December 2017 from 3.9GB in the previous corresponding period. In 1H2018, the group's revenue grew by 3.6% to RM3.3 billion (1H2017: negative 4.3%). The implementation of MFRS 15 beginning January 1, 2018 onwards may impact Celcom's revenue recognition and consequently its profitability margins. MARC will monitor the impact of MFRS 15 on Celcom's financials.

 

CFO was flat at RM2.3 billion while net cash from investing activities was lower at RM1.3 billion in 2017 compared to RM2.2 billion in 2016 which was largely due to an initial payment of RM816.7 million for the 900MHz/1800MHz spectrum band. In 2017, Celcom invested RM1.3 billion on capex, primarily on network coverage as well as digital and retail transformation. Notwithstanding this, cash flow pressures remained in the near term given the impending payments for the 700MHz and 2600MHz spectrum bands in addition to the average capex of RM1.0 billion annually from 2018 to 2020. Free cash flow turned positive to RM1.0 billion in 2017 on non-distribution of dividends, leading to a significant increase in cash balances to RM1.8 billion. Celcom's shareholders' equity, which turned positive for the first time since a restructuring exercise in 2010, stood at RM146.8 million in 2017. Adjusted cash-to-debt ratio rose to 0.49 from 0.35 in the previous year.

 

 

Contacts: Lim Chi Ching, +603-2717 2963/ chiching@marc.com.my ; David Lee, +603-2717 2955/ david@marc.com.my

 

October 22, 2018

 

 

[This announcement is available in MARC's corporate homepage at http://www.marc.com.my]

----   DISCLAIMER    ----

This communication is provided by Malaysian Rating Corporation Berhad ("MARC") on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2018 Malaysian Rating Corporation Berhad

 

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