MARC Ratings has affirmed its AAAIS/Stable rating on Celcom Networks Sdn Bhd’s (CNSB) Sukuk Murabahah Programme of RM5.0 billion. CNSB is wholly owned by Celcom Berhad, which, in turn, is 100%-owned by CelcomDigi Berhad, and provides network telecommunication (telco) services to the group.
MARC Ratings considers the overall credit profile of CNSB’s ultimate shareholder, CelcomDigi, in view of the strong operational and financial linkages between the group’s entities. CelcomDigi’s leading market position in the domestic telco industry, its strong profit margins and robust cash flow generation ability continue to be key rating drivers. MARC Ratings also views the favourable telco industry prospects would provide further upside to the group’s business and financial profile. These strengths are tempered by the potential increase in the group’s borrowings to fund investments into the 5G network including the potential equity stake in the second 5G network provider. Heightened competition could also pose headwinds to significant subscriber growth.
CelcomDigi remains the largest telco in Malaysia, holding about 40% of the market with 20.2 million subscribers as at end-June 2024. The rating agency notes CelcomDigi’s ongoing efforts to improve network coverage and quality, as well as ensure its sites are 5G-ready to support growth. For this purpose, the group is investing RM4.0 billion in capex and as of date, 86% of these sites are 5G-ready. Additionally, CelcomDigi is reinvesting a further RM2.2 billion for its network integration and modernisation exercise which is expected to be completed by mid-2025. MARC Ratings understands that the capex surrounding the second 5G network will be dependent on the finalisation of equity stakes for each telco, either in Digital Nasional Berhad or the second 5G network provider of which a decision is expected by year end.
As at end-June 2024, borrowings stood at RM8.0 billion (end-2023: RM7.6 billion). CelcomDigi’s liquidity profile remains strong, supported by robust cash generation. In 1H2024, the telco generated RM1.8 billion of cash from its operations, comfortably covering capex (RM836 million) and shareholders’ return (RM821 million). The rating agency views that the telco has financial buffers to undertake planned capex; a collaboration with other telco(s) on the second 5G network could reduce funding requirement.
In 1H2024, revenue was relatively stable at RM6.28 billion (1H2023: RM6.30 billion), while earnings before interest, tax, depreciation and amortisation margin narrowed slightly to 45.9% (on excluding the one-time expense related to a voluntary separation scheme). For full year 2024, MARC Ratings expects performance to closely mirror that of FY2023, with upsides in financial performance anticipated from FY2025 onwards from greater merger synergies, largely from capex/opex savings.