Published on 25 Jan 2021.
RAM Ratings has reaffirmed the AA3/Stable rating of BGSM Management Sdn Bhd’s (the Group) IMTN Programme of up to RM10 bil in nominal value (2013/2043). The reaffirmed rating is premised on the well-established position of the Group’s ultimate subsidiary, Maxis Berhad (Maxis or the Company), in the Malaysian mobile services industry. The rating also considers the IMTN’s structural subordination to Maxis’ considerable priority debts.
Maxis remains Malaysia’s leading mobile operator, accounting for a respective 42.2% and 40.1% of the Big Three (i.e. Maxis, Digi and Celcom) market incumbents’ revenue and operating profit before depreciation, interest and tax (OPBDIT) in 9M 2020. This was despite the outbreak of COVID-19 and the enforcement of the nationwide Movement Control Order (MCO) in mid-March 2020, during which the telco industry had been affected by the temporary lack of international roaming revenue, higher credit risks that increased receivables impairment, and greater data consumption that strained network capacity.
Despite intense competition, Maxis’ core mobile business stayed resilient with a relatively unchanged subscriber base of 11.0 mil as at end-September 2020. Notably, Maxis has managed to regain and maintain the market’s biggest mobile subscriber base since the beginning of 2020. As at end-September 2020, the Company remained the leader in the postpaid segment with a 39.2% market share (end-September 2019: 37.5%). Maxis’ blended average revenue per user (ARPU) remains the highest among the Big Three at RM49 (industry average: RM46), underpinned by the steady growth of its postpaid base comprising higher-value subscribers.
In FY Dec 2019, Maxis’ revenue edged up 1.3% to RM9.3 bil, backed by its convergence strategy and the commendable growth of its home fibre (+16.2%) and enterprise (+15.5%) segments. That said, revenue would be affected this year as the COVID-19 pandemic would stifle the Company’s effort to increase its mobile services revenue from RM7.1 bil in fiscal 2019 (-4.9%). In 9M FY Dec 2020, its adjusted OPBDIT margin remained stable at 38.7% (FY Dec 2019: 38.9%) as cost-saving measures had helped offset heftier impairment charges on receivables.
On the flip side, the Group’s bottom line sank into the red with a RM1.2 bil post-tax loss in FY Dec 2019 due to a one-off RM2.4 bil of non-cash goodwill impairment on its investment in Maxis. However, its adjusted funds from operations debt coverage (FFODC) stayed intact at 0.28 times (fiscal 2018: 0.27 times). Based on RAM’s stressed scenario of an average 2% y-o-y drop in Maxis’ top line and a flattish OPBDIT margin of around 39%, the Group’s FFODC is envisaged to average at the rating threshold of 0.20 times in the next two years. Maxis’ convergence strategy and expansion into the fibre and enterprise businesses will be crucial to its long-term growth and sustainability, given the challenging mobile landscape and the Group’s limited room for additional debt.
In view of delayed 5G spectrum allocation, Maxis’ capex plan for 5G rollout will be structured to more targeted areas, driven by demand. The Company will emphasise network capacity improvement to support its 4G network and data traffic growth while expanding its fibre and enterprise segments. Ultimately, Maxis will capitalise on its position as the leading converged solutions provider in Malaysia to complement its core mobile business. Capitalising on its first-mover advantage, the revenue of Maxis’ home fibre and enterprise segments grew significantly at a respective 32.6% and 91.0% y-o-y to RM346 mil and RM403 mil in 9M FY Dec 2020 (9M FY Dec 2019: RM261 mil and RM211 mil). These segments accounted for a combined 13.0% of Maxis’ service revenue in the same period (9M FY Dec 2019: 8.1%). They are anticipated to be the Company’s key growth drivers in the next few years.
Yip Chee Meng
(603) 3385 2516
(603) 3385 2577
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