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 telecommunication (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 prevailing keen competition and capex-heavy telco sector are moderating factors.

Celcom has improved its LTE population coverage to 94% and LTE-A coverage to 84% 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. 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, the capital outlay remains subject to further evaluation and subsequent finalisation by regulatory authorities.

As at end-September 2020, Celcom’s subscriber base totalled approximately 8.4 million while blended average revenue per user was RM48/month on lower spending amid the COVID-19 pandemic and intense competition (4Q2019: RM53/month). Revenue declined by 7.9% y-o-y to RM4.6 billion in 9M2020 as contribution from the prepaid segment was lower. However, operating profit before interest, tax, depreciation and amortisation (OPBITDA) margin, excluding the one-off employee restructuring exercise, was higher at 41.3% from cost optimisation efforts (9M2019: 38.5%).

Cash flow from operations 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 aggressive sales of devices 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. MARC notes that the programme’s tenure has been proposed to be changed to perpetual.

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.

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