[RAM] RAM Ratings affirms TM Tech's AAA/P1 sukuk ratings

RAM Ratings has affirmed the ratings of TM Technology Services Sdn Bhd’s (TM Tech) sukuk:

In 2023, Telekom Malaysia Berhad (TM or the Group) undertook a corporate exercise that culminated in TM Tech emerging as the Group’s main earnings contributor via its core businesses and operations. Given the inextricable financial and operational linkage between TM Tech and TM, RAM views the two entities in aggregate from a rating perspective. 

TM’s continued dominance in the Malaysian broadband services space, its extensive fiber network and key role as the domestic telecommunications and digital infrastructure provider anchors the affirmation of the ratings. In our assessment of Government support for government-linked entities, we also see the Group as playing a critical role as a key local telecommunication company and possess strong relationship with the Government of Malaysia. These factors further solidify its position and suggest that extraordinary financial support extended by the Government as highly likely in the event of financial distress.

The Mandatory Standard on Access Pricing (MSAP) policy revision came into effect on 1 March 2023. As TM’s wholesale agreements with access seekers are negotiated directly, its overall revenue contractions from MSAP were minimal, keeping the Group’s performance strong in FY Dec 2023. Retail packages enjoyed significant speed upgrades under the revised MSAP, preserving the Group’s average revenue per user. 

Overall, TM’s top line rose 1.1% in fiscal 2023 on the back of TM Global and Unifi’s strong performance, balanced by contractions in TM One’s revenue. While stable, its unadjusted operating profit before depreciation, interest and tax margin narrowed slightly to 38.7% (FY Dec 2022: 39.7%) owing to cost pressures. Improved earnings, coupled with steady deleveraging, led to better leverage and debt coverage ratios. TM’s unadjusted gearing hit a low of 0.71 times as at end-December 2023 while its funds from operations debt coverage stood at a high 0.76 times – a level not seen since 2008. The Group’s financial metrics are expected to stay steady in coming years even after incorporating RAM’s stressed analysis of muted topline growth, cost pressures and rising capital expenditure.

In a separate development, TM, alongside other industry players, agreed to subscribe to a 14% stake in Digital Nasional Berhad – the state-owned company in charge of the 5G network infrastructure rollout under a share sale agreement – subject to certain conditions precedent being met.  While this marks a pivotal milestone in the rollout plans toward the government’s dual 5G network model, implementation progress remains protracted. 


Analytical contacts
Ho Chian Leng, CFA
(603) 3385 2527
chianleng@ram.com.my

Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my

Media contacts
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my