RAM reaffirms AAA/P1 ratings of Telekom Malaysia’s sukuk issuances

KUCHING: RAM Ratings has reaffirmed the AAA/Stable/P1 ratings of Telekom Malaysia Bhd’s ( TM) sukuk programmes as well as the AAA/ Stable rating of Hijrah Pertama Bhd’s sukuk.

The ratings continue to reflect the group’s strong position as the national fixed-line telephony company and dominant fixedbroadband provider as well as its continued robust financial performance.

Given its critical role to the nation and strong relationship wit h 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 takeups and the upselling of its fixed-broadband offerings,” the agency said in a statement.

“As at end-March 2017, TM boasted 3.18 million fixed-line subscribers or a 97 per centsubscriber 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 quadplay package (fixed voice, fixed broadband, IPTV and mobile service).”

Elsewhere, RAM said the expansion of TM’s network via the deployment of the HighSpeed 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 mobi le incumbents and the ubiquity of smart phones amid fasterspeed connections have led to a consumer preference for higher on-the-go bandwidth, resulting in immensecompetitivepressure on the Group from wirelessbroadband and mobile service providers alike.”

Meanwhi le, 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 per cent 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,” it said.

While TM’s earnings continue to be susceptible to broadband pricing uncertainty and its mobile arm stays loss making, RAM expects the group’s f inancial metrics remain intact, sustained by the healthy take-up of its fixed-broadband offerings.