Wednesday, Sep 20, 2023
MARC Ratings has upgraded its rating on Celcom Networks Sdn Bhd’s (CNSB) Sukuk Murabahah programme of RM5.0 billion to AAAIS from AA+IS. The rating outlook is stable. The outstanding under the programme stood at RM1.15 billion as at end-1H2023.
The rating action follows from MARC Ratings’ assessment that the merger between CNSB’s parent Celcom Berhad (Celcom) and Digi.Com Berhad to form CelcomDigi Berhad has proceeded with minimal hitches to group operations, alleviating concerns on integration and execution risks. The rating agency had highlighted in previous reviews that the merger would be viewed positively in CNSB’s rating pending assessment on key factors including CNSB’s strategic role and the direction of the enlarged entity post-merger. CNSB provided network telecommunication services to the then Celcom group and its rating had been anchored on the overall credit profile of the group, premised mainly on the significant operational and financial linkages between them.
The rating upgrade incorporates the continued significant role of CNSB in the merged entity and the stronger credit profile of CelcomDigi. The merger has fortified CelcomDigi’s market position as the largest telco in Malaysia by subscriber base, with a commanding share of the mobile market at 42% and a combined customer footprint of around 20.5 million. MARC Ratings views that there are additional synergies to be gained from the merger that would further strengthen CelcomDigi’s operations and foothold in the market. Coupled with ongoing improvements in its network quality and coverage, as well as the gradual rollout of its 5G services, the group would be positioned for top line growth.
For 1H2023, revenue improved 3% y-o-y to RM6.3 billion, assuming the merger was completed in January 2022 for a meaningful comparison. Earnings before interest, tax, depreciation, and amortisation (EBITDA) margin had also widened to 48% from 44% a year ago, underpinned by the improved top line. CelcomDigi’s liquidity profile is characterised by robust cash flow from operations (CFO) and strong cash balances (RM834 million). In 1H2023, CFO was RM2.6 billion, providing ample headroom to meet capex (RM360 million) and shareholders’ returns (RM746 million).
While the merger has led to a higher debt balance of about RM7.4 billion, CelcomDigi’s capacity for debt service is sound, as evidenced by CFO-to-debt cover of 0.6x in 1H2023. Given this strength, the group also has the capacity to deleverage, supported by revenue and EBITDA margin growth. Notwithstanding that the consolidation is viewed to be supportive of long-term price stability and profitability, competition in mobile tariffs remains intense, with the challenging business environment driving tactical pricing strategies to preserve market share.