MARC Ratings has affirmed its AA+IS rating on Celcom Networks Sdn Bhd’s (CNSB) RM5.0 billion Sukuk Murabahah Programme with a stable outlook. As at end-October 2022, the outstanding amount stood at RM1.15 billion.
In assessing CNSB, MARC Ratings has considered the overall credit profile of the Celcom Axiata Berhad (Celcom) group, premised on the strong operational and financial linkages between them, and the undertaking by Celcom to maintain its 100% direct or indirect ownership of CNSB throughout the sukuk tenure.
In November 2022, Celcom and Digi.com Berhad completed their merger to form Malaysia’s largest mobile operator with an estimated subscriber market share of about 42%. We view the merger as broadly positive, which may support a higher rating. However, this will depend on our further assessment of the possible execution and integration risks from the merger, and the strategic direction of the enlarged entity and its post-merger financial policies. At this juncture, both entities remain operationally and financially independent.
The rating affirmation reflects Celcom’s strong position in the domestic telco industry, continued steady operating performance and strong cash flow generation, supported by broader profitability margins from cost optimisation. A competitive environment and continued capex requirement, however, are moderating factors.
Celcom reported an increase in revenue of 6.5% y-o-y in 2021 and by a further 2% in 1H2022, as subscriber growth offset the drop in average revenue per user due to competitive pricing. Overall, we believe Celcom’s strong business profile will continue to translate into robust operating margins and cash flow generation, in turn, comfortable interest and debt coverages. As regards borrowings, Celcom’s total debt has eased from RM4.7 billion as at end-2020 to RM4.0 billion as at end-October 2022 on the back of scheduled repayments of outstanding debt.