CELCOM NETWORKS SDN BHD - 2020 |
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| Report ID | 605355 | Popularity | 951 views 146 downloads | |||||
| Report Date | Dec 2020 | Product | ||||||
| Company / Issuer | Celcom Networks Sdn Bhd (fka Celcom Transmission (M) Sdn Bhd | Sector | Infrastructure & Utilities - Telecommunications | |||||
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| Rationale |
MARC has affirmed its AA+IS rating on Celcom Networks Sdn Bhd’s (CNSB) RM5.0 billion Sukuk Murabahah Programme with a stable outlook. CNSB provides network telecommunications (telco) services to Celcom Axiata Berhad (Celcom) group. In assessing CNSB, MARC’s approach is to consider the overall credit profile of Celcom, premised on strong financial and operational linkages of entities within the group. The rating approach is also supported by Celcom’s undertaking to maintain its 100% direct or indirect ownership of CNSB throughout the sukuk tenure. The rating affirmation is driven mainly by Celcom’s established market position and strong cash flow generation. The rating is also underpinned by a healthy operating profit margin and cash flow metrics. The prevailing keen competition and capex-heavy telco sector are moderating factors. Celcom has improved its Long-Term Evolution (LTE) population coverage to 94% and Long-Term Evolution Advanced (LTE-A) coverage to 84% as at end-September 2020 as it benefitted from heavy investment in its 4G network, averaging at RM1.1 billion p.a. over the last few years. Considering Celcom’s strong position in 4G coverage, capex investments over the near- to medium-term are expected to remain high, albeit lower at around RM1.0 billion p.a., mainly to further improve network quality and capacity to meet growth in data traffic. In regard to 5G deployment, a key challenge is the high investment cost, with network infrastructure including spectrum accounting for the bulk of the cost. The capital outlay for 5G deployment, however, remains subject to further evaluation and subsequent finalisation by regulatory authorities. As at end-September 2020, Celcom’s subscribers totalled approximately 8.4 million (end-2019: 8.4 million subscribers), comprising approximately 3.0 million postpaid subscribers and 5.4 million prepaid subscribers. Meanwhile, Celcom’s average revenue per user (ARPU) (blended basis) was RM48/month in 3Q2020 (4Q2019: RM53/month) on lower spending amid the COVID-19 pandemic and intense competition. Going forward, Celcom will continue to focus on growing its postpaid segment to mitigate the moderating prepaid segment. For 9M2020, Celcom reported a revenue of RM4.6 billion, a decline of 7.9% y-o-y as contribution from the prepaid segment was lower. However, operating profit before interest, tax, depreciation and amortisation (OPBITDA), excluding the one-off employee restructuring exercise, was higher at 41.3% (9M2019: 38.5%) from cost optimisation efforts. Cash flow from operations (CFO) has generally been steady at about RM2.1 billion p.a. over the past five years with the exception of 2018 when it had been adversely affected by an acceleration of certain payments coupled with higher receivables following the aggressive sales of device bundles. With regard to the sukuk programme, the current outstanding stood at RM2.3 billion following the redemption of Series 4 of RM1.2 billion in August 2020 via a shareholder loan from Axiata Group Berhad (Axiata). MARC notes that the programme’s tenure has been proposed to be changed to perpetual. Going forward, the rating agency expects Celcom to continue executing its capital investment strategy in a fiscally responsible manner, pursue a prudent dividend policy and maintain adequate liquidity. The rating and the stable outlook reflect MARC’s expectation that Celcom will sustain its market position as well as maintain a prudent capex programme and dividend distribution policy. Major Rating Factors Strengths • Core subsidiary of Celcom; • Major integrated telecommunications player; and • Strong and steady cash flow generation. Challenges/Risks • High financial leverage; • Capital-intensive industry; and • Intense competition in the telecommunications industry. |
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