[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 (the BGSM Group) RM10 bil Islamic Medium-Term Notes (IMTN) Programme (2013/2043). 

The rating is premised on the BGSM Group’s indirect subsidiary Maxis Berhad’s (the Company) well-established business position in the local telecommunications (telco) industry, backed by the Company’s strong operational and financial performance. We also factored in the IMTN’s structural subordination to Maxis’ debts. 

With the merger between Celcom Berhad and Digi.com Berhad, Maxis is now the second largest telco player by overall mobile subscriber base, commanding a still sizeable market share of 33.9% and 20.5% of the country’s postpaid and prepaid subscriptions, respectively, as of end-September 2023. Total subscriber base charted net additions of 258,000 y-o-y to reach 12.1 mil on the same date. Its emphasis on the higher-value postpaid segment remains a key strategy. Home connections also continued to gain traction, rising to 730,000 (end-September 2022: 652,000). 

Maxis’ total revenue strengthened by 5.9% y-o-y to RM9.8 bil in FY Dec 2022, driven by commendable growth of postpaid, fibre, enterprise and device revenue. The mobile segment is still a key income contributor while diversification efforts into home connectivity and enterprise solutions saw the latter contributing a material 22% - 24% of total revenue over the past three years. In 9M FY Dec 2023, Maxis’ revenue continued to grow (+2.8% y-o-y to RM7.4 bil), thanks to the sustained momentum of its converged service offerings strategies. Despite higher staff costs due to the staff separation scheme under the Company’s three-year cost optimisation programme, Maxis’ overall operating profit before depreciation, interest and tax (OPBDIT) stayed largely unchanged at RM2.7 bil. 

On the flip side, the BGSM Group’s bottom line sank into the red with a net loss of RM7.4 bil in FY Dec 2022, impacted by the recognition of a substantial non-cash goodwill impairment charge of RM8.2 bil in relation to its investment in Maxis. The non-cash impairment loss was primarily attributed to significantly higher discount rate used amid the higher interest rate environment. Notwithstanding the loss-making position and a slight deterioration in its gearing ratio to 0.56 times as at end-December 2022 (end-December 2021: 0.42 times), the BGSM Group still registered positive operating cash flows and maintained a healthy level of cash reserves. Its funds from operations debt coverage (FFODC) stayed intact at 0.31 times in fiscal 2022 (fiscal 2021: 0.29 times).

RAM’s stressed scenario assumes stagnant revenue growth and OPBDIT margin compression for the next three years. We believe the Maxis’ rationalised workforce, more targeted 4G capital expenditure and cash conservation strategies could afford some added flexibility to accommodate the RM360 mil of annual 5G access fees and a RM233 mil cash injection into wholesale 5G operator Digital Nasional Berhad (DNB). The BGSM Group’s FFODC is envisaged to average a strong 0.23 times during the period. 

Maxis started providing 5G offerings subsequent to its signing of the 5G access agreement in August 2023. Although about 10 months behind other telcos in entering into such an agreement, we believe Maxis is not disadvantaged given the still-nascent 5G landscape. RAM is of the view that while the government’s decision to transition to a dual 5G network and the telcos’ consensus to take up equity in DNB mark a pivotal milestone for the nation’s 5G rollout, any significant increase in earnings from 5G is likely to be observed only in the medium to long term. 


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

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

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