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.
CNSB provides network telecommunications services to its parent Celcom Axiata Berhad (Celcom) and fellow subsidiary Celcom Mobile Sdn Bhd. In assessing CNSB, MARC has considered the overall credit profile of the Celcom group, premised on the strong operational and financial linkages between entities of the group. Celcom has also given its undertaking to maintain its 100% direct or indirect ownership of CNSB throughout the sukuk tenure.
Our rating assessment is based on Celcom’s existing operations and excludes the potential impact of the proposed merger between Celcom and Digi.com Berhad. The merger, if materialised, is expected to be credit positive to Celcom as the merged entity would have stronger business and financial profiles. The rating will be reassessed upon the completion of the merger exercise.
Celcom’s established market position in the domestic telco industry, its steady operating performance and strong cash flow generation are key drivers to the rating affirmation. Broader profitability margins from cost optimisation have also strengthened cash flows. A competitive environment and continued capex requirement, however, are moderating factors.
Celcom’s total mobile subscribers grew by 14.9% y-o-y to 9.2 million in 1H2021, underpinned by competitively priced and data-centric plans. Blended average revenue per user during the period remained relatively steady at RM45/month, while margin on operating profit before interest, tax, depreciation and amortisation broadened to 40.7% (1H2020: 39.4%, excluding the one-off employee restructuring programme), thanks to a stronger topline and cost optimisation efforts. As at end-2020, Celcom’s share of the domestic telco industry by number of subscriptions stood at 18.3% (2019: 17.7%).
As at end-October 2021, total borrowings declined to RM4.15 billion following the sukuk redemption of RM400 million and RM150 million in August and October 2021 through internal funds. Celcom’s strategy to retain existing subscribers, acquire new ones and augment prepaid-to-postpaid migration will entail competitive plans and continued investments on network. 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.