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Rating Action:

Moody's affirms Telekom Malaysia Berhad's A3 ratings; outlook stable

13 Dec 2021

Singapore, December 13, 2021 -- Moody's Investors Service has affirmed Telekom Malaysia Berhad's (TMB) A3 issuer and senior unsecured rating, as well as the (P)A3 rating on TMB's wholly owned finance subsidiary, Tulip Maple Berhad's USD750 million senior unsecured multicurrency sukuk issuance program.

The outlook on all ratings is stable.

Moody's has also affirmed TMB's Baseline Credit Assessment (BCA) of baa1. TMB's A3 rating incorporates (1) the company's BCA of baa1; and (2) the expected extraordinary support from the Government of Malaysia (A3 stable), given the company's close links with the government, which results in a one-notch uplift to the BCA.

"TMB saw a turnaround in revenues across all its business segments since Q4 2020, as consumer data consumption and bandwidth demand from other telecom providers rose amid the pandemic, leading to an acceleration in TMB's data and lease segment," says Nidhi Dhruv, a Moody's Vice President and Senior Analyst.

RATINGS RATIONALE

The baa1 BCA reflects TMB's position as the leading provider of fixed-line services and the largest broadband telecommunications service provider in Malaysia, as well as its relatively strong cash flow, sound debt maturity profile and balanced liquidity needs.

Moody's expects TMB to grow its revenues by 3.0%-3.5% in fiscal 2022 and around 2.5% in 2023. This follows declines in revenue since fiscal 2019 on the back of declining voice usage and revenues, regulatory restrictions on broadband pricing, and a more competitive operating environment.

TMB's revenues will further benefit from its impending contract with Digital National Berhad (DNB) for the provision of 5G services under a Single Wholesale Network (SWN) in Malaysia. Under the contract, TMB will lease its fiber network to DNB, which will be further leased by DNB to all telcos in Malaysia on a cost-plus margin basis.

At the same time, Moody's expects the company's EBITDA margin to remain relatively stable at around 37.0% over the next two years following successful cost-saving initiatives in the first nine months of 2021.

"TMB has also reduced its leverage to 1.8x for 12 months ended September 2021 from 2.6x in December 2019 and 2.3x in December 2020, as the company repaid its MYR2.0 billion in debt during Q1 2021. Its revenue and EBITDA also benefited from an unprecedented increase in broadband subscribers during the nine months ended September 2021," adds Dhruv, who is also Moody's lead analyst for TMB.

LIQUIDITY

TMB's liquidity is excellent with a well-laddered debt maturity profile and with around half of its borrowings (excluding leases) maturing after 2025. The company does not plan to raise new debt over the next 1-2 years and should have sufficient cash to repay upcoming debt maturities. TMB may also consider prepaying MYR0.5 billion-MYR1.0 billion of debt in 2022.

OUTLOOK

TMB's rating outlook is stable. On a fundamental basis, Moody's expects the company to continue delivering on its business model and that broadband revenue growth will help offset the structural decline in its traditional voice-based segment.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's notes the recent improvement in the company's operations that have resulted in a significant strengthening in credit metrics that meet the rating agency's requirement for a higher BCA. However, a longer track record of maintaining retained cash flow in excess of 25%-30% of debt and debt/EBITDA below 2.0x on a sustained basis would be pre-requisites for a higher BCA.

As well, for an upgrade of the BCA, TMB should consistently grow its revenues by low to mid-single-digit percentage; and its involvement in the government's 5G plans should not stress capital spending obligations beyond Moody's current estimates of 16%-18% of revenues.

Downward rating pressure could arise if TMB's BCA weakens because of an erosion of its dominant market positions, a significant decline in its telecommunications revenue, or a significant increase in or acceleration of investments in government-related projects.

Key indicators indicative of a weakening operating profile include muted revenue growth, adjusted debt/EBITDA above 2.8x, or adjusted retained cash flow/debt falling below 20%-25% on a sustained basis.

In addition, a negative rating action on the Malaysian sovereign or any adverse change in the relationship between the government and TMB could trigger a downward rating action for the company.

The methodologies used in these ratings were Telecommunications Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Telekom Malaysia Berhad (TMB) is the largest fixed-line and broadband telecommunications operator in Malaysia. As of 30 September 2021, Malaysian government-related entities held around 65.37% of TMB's shares. Its largest shareholder is the government's strategic investment fund Khazanah Nasional Berhad (A3 backed senior unsecured), which owns 20.11% of TMB. The Ministry of Finance also owns a special share, which allows the government to ensure that TMB's major decisions are consistent with its policies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Nidhi Dhruv, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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