CELCOM NETWORKS SDN BHD - 2021 |
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| Report ID | 60538900455 | Popularity | 645 views 128 downloads | |||||
| Report Date | Dec 2021 | Product | ||||||
| Company / Issuer | Celcom Networks Sdn Bhd (fka Celcom Transmission (M) Sdn Bhd | Sector | Infrastructure & Utilities - Telecommunications | |||||
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| Rationale |
Rating action MARC has affirmed its AA+IS rating on Celcom Networks Sdn Bhd’s (CNSB) RM5.0 billion Sukuk Murabahah Programme with a stable outlook. The outstanding currently stands at RM1.75 billion following the redemption of Series 5 and Series 7 of RM400 million and RM150 million in August and October 2021. Rationale CNSB provides network telecommunications services to its parent Celcom Axiata Berhad (Celcom) and fellow subsidiary Celcom Mobile Sdn Bhd (CMSB). In assessing CNSB, we have considered the overall credit profile of the Celcom group, premised on the strong operational and financial linkages between entities of the group and the repayment of the sukuk. Celcom has also given its undertaking to maintain its 100% direct or indirect ownership of CNSB throughout the sukuk tenure. Our rating assessment has excluded the potential impact of the proposed merger between Celcom and Digi.com Berhad (Digi) as the process is ongoing while approvals are still pending from regulatory authorities. At this juncture, we have assessed Celcom’s credit profile in the context of its existing operations. The potential merger is expected to be credit positive on Celcom’s credit profile as it would result in a merged entity with potential synergies for stronger business and financial profiles. Upon the completion of the merger, we would reassess the rating, focusing on the merged entity’s strategic direction, the impact thereof on its business and financial profile. Our rating affirmation remains driven by Celcom’s established market position in the domestic telco industry, its steady operating performance, and its strong cash flow generation. Broader profitability margins from cost optimisation have also strengthened cash flows. A competitive environment and continued capex requirement, however, are moderating factors. Celcom’s subscribers grew by 14.9% y-o-y to 9.2 million in 1H2021, comprising 3.1 million postpaid and 6.1 million prepaid subscribers. The overall growth was contributed by competitively priced and data-centric plans. Celcom’s share of the domestic telco industry by number of subscriptions stood at 18.3% (2019: 17.7%) as at end-2020. In 1H2021, Celcom’s blended average revenue per user (ARPU) was relatively steady at RM45/month while total revenue gained 8.6% y-o-y, mainly supported by expansion in prepaid segment. During the period, operating profit before interest, tax, depreciation and amortisation (OPBITDA) margin broadened to 40.7% (1H2020: 39.4%, excluding the one-off employee restructuring programme) owing to a stronger topline and cost optimisation efforts, particularly in network-related and information technology expenses via technology transformation. Following the redemption of Series 5 and Series 7 of RM400 million and RM150 million in August and October 2021 through internal funds, total borrowings declined to RM4.15 billion as at end-October 2021. Celcom’s strategy to retain existing subscribers, acquire new ones and augment prepaid-to-postpaid migration will entail a focus on competitive plans and continued investments on network. Over the last five years, Celcom has invested a total of RM5.7 billion to expand its network coverage and upgrade its capacity. In 1H2021, Celcom reached 93% and 90% of population coverage on 4G Long-Term Evolution (LTE) and 4G Long-Term Evolution Advanced (LTE-A). Over the medium term, capex is expected at circa RM1.0 billion per annum and would centre on improving network quality and ensuring 5G readiness of service platforms. Rating outlook The stable outlook reflects MARC’s expectation of Celcom maintaining its market position and financial performance, as well as a prudent capex programme and dividend distribution policy. Rating trajectory Upside scenario Any upgrade will take into consideration a sustained improvement in profitability, cash flow generation and overall financial profile. Completion of the proposed merger could also be positive for the rating. Downside scenario Any significant weakening in credit profile arising from, inter alia, loss of market share, lower ARPU, sharp increases in borrowings and/or aggressive dividend distribution, could pressure the rating and/or outlook. Key strengths • Integrated telecommunications player • Improved EBITDA margins from cost optimisation exercise • Strong and steady cash flow generation Key risks • Evolving nature of telco industry requires continued capex investment • Highly competitive telco industry |
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