TM faces flat subscriber growth with broadband price cut: RAM Ratings

PETALING JAYA: Telekom Malaysia Bhd (TM) may see flat subscriber growth and further debt drawdown for capital expenditure and dividends following the expected reduction of broadband subscription rates by 25%, as per RAM Ratings initial assessment.
The rating agency maintained TM’s credit metrics at AAA/Stable/P1 ratings of the group’s sukuk programmes or the AAA/Stable rating of Hijrah Pertama Bhd’s sukuk, noting that it does not expect immediate impact.
It also expects TM’s gearing level to peak at 1.50 times, while its funds from operations debt coverage will thin to an average of 0.31 times in the next three years. (FY Dec 2017: 1.10 and 0.44 times).
“Our rating approach also considers TM’s strategic role and strong relationship with the government, which in our view renders the group privy to extraordinary government support, if required,” it said.
On June 20, 2018, the government announced that broadband subscription rates could be reduced by 25% by year-end pursuant to the implementation of the Mandatory Standard Access Pricing (MSAP).
The retail broadband segment constitutes the bulk of TM’s top line (FY Dec 2017: 44%) while as the sole owner and operator of the high-speed broadband (HSBB) network, the agency expect the move to have the most pronounced impact on TM’s financial position, as the implementation of the MSAP would lower wholesale prices on HSBB access for the other telecommunication companies (telcos).
This, it said, would allow the telcos to cut the prices of their broadband packages, thereby compelling TM to revise theirs accordingly to remain competitive.
Competition in the current backdrop as it is, is already intensifying with a noticeable shift in consumer preferences to mobile and wireless broadband.
At this juncture, TM and its counterparties are still in discussions to finalise wholesale prices, to be completed within the next one to two months.
RAM Rating said it will reassess its stance subject to changes in the government’s directive and/or the difference in pricing strategies of TM.