[RAM] RAM Ratings affirms BGSM Management's AA3/Stable sukuk rating

RAM Ratings has affirmed the AA₃/Stable rating of BGSM Management Sdn Bhd’s (BGSM Group) RM10 bil Islamic Medium-Term Notes (IMTN) Programme (2013/2043). 

The rating reflects BGSM Group’s close link to its indirect subsidiary, Maxis Berhad (the Company), which has a well-established business position in Malaysia’s telecommunications (telco) industry, backed by the Company’s strong operational and financial performance. The rating action also considers the IMTN’s structural subordination to Maxis’ debts. 

Now Malaysia’s second-largest telco following the merger of Celcom Berhad and Digi.com Berhad to form CelcomDigi Berhad, Maxis holds a subscriber market share of about 25%, with a subscriber base of 12.8 mil as of end-June 2024. Amid the competitive operating landscape, Maxis maintains a strong market presence, thanks to its strategic focus on converged services across the mobile, broadband and enterprise segments.

In FY Dec 2023, the Company’s revenue climbed 4.0% to reach RM10.2 bil, driven by broad-based growth across all segments. The upward momentum continued into 9M FY Dec 2024, seeing revenue rise 4.4% y-o-y to RM7.8 bil, primarily fuelled by sustained growth in the consumer postpaid segment (+5.2% y-o-y) as well as robust expansion in consumer home revenue (+9.4% y-o-y) and enterprise converged revenue (+7.0% y-o-y). Along with topline growth, Maxis’s operating profit before depreciation, interest and tax was up 6.9% y-o-y, supported by a more stable cost structure due to ongoing cost optimisation efforts. 

BGSM Management posted a reduced net loss of RM0.1 bil in fiscal 2023, largely owing to lower non-cash goodwill impairment charges of RM0.8 bil (fiscal 2022: RM8.2 bil) related to its investment in Maxis. Despite the net loss, BGSM Group’s equity base remained healthy, with manageable gearing of 0.57 times as at end-fiscal 2023 (end-fiscal 2022: 0.56 times), as it degeared further, paring total debt to RM11.9 bil (fiscal 2019: RM13.3 bil; fiscal 2022: RM12.3 bil). Funds from operations debt coverage (FFODC) held steady at a comfortable 0.31 times in fiscal 2023 (fiscal 2022: 0.31 times). 

RAM’s stressed scenario projects relatively flat revenue growth over the near- to mid-term, with minimal topline expansion for FY Dec 2024 and the subsequent three years. We expect Maxis’ OPBDIT margin to stabilise at around 33% from 2024 onwards, factoring in an estimated RM360 mil of annual 5G access fees. Given a potentially heavier debt load to fund working capital needs and capital expenditure, our stressed analysis indicates that BGSM Group’s adjusted FFODC will average 0.23 times over the next three years, remaining commensurate with the current rating. 

The Group’s debt servicing capacity remains supported by pre-financing cash flow of at least RM2.0 bil annually and dividends from Maxis – under a targeted payout ratio of at least 75% of its consolidated profit after tax – which are expected to adequately cover BGSM Management’s annual debt obligations. This offsets a weaker cash-to-short-term debt ratio of 0.62 times as at end-December 2023 (end-December 2022: 1.01 times).

From an industry perspective, 5G is seen as the next technological advancement to boost earnings growth. While Malaysia has achieved 5G coverage of over 80% with 14.8 mil 5G subscribers as at end-June 2024, the 5G ecosystem remains in its early stages. As infrastructure and use-cases continue to develop, Maxis is well-positioned to capture growth, especially within the enterprise segment where it has increasingly focused its efforts.


Analytical contacts
Tan Yan Choong
(603) 3385 2502
yanchoong@ram.com.my

Chong Van Nee, CFA
(603) 3385 2482
vannee@ram.com.my

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