Moody's: Telekom Malaysia's FY2012 Results are in Line with Expectations
Moody's Investors Service notes that Telekom Malaysia's full year results for 2012 were in line with expectations, and have no impact on Telekom Malaysia's current A3 rating and stable outlook.
Telekom Malaysia recorded revenue growth of 9.2%, which was better than the industry average, and was led by positive revenue growth in internet, broadband and data services. In line with expectations, reported EBITDA margins declined to 31.8% as compared to 33.3% a year ago, on account of higher direct costs and maintenance fee.
"Our expectation is for adjusted EBITDA margins to continue to decline moderately but stabilize in the early thirties once broadband penetration deepens and HSBB becomes materially EBITDA accretive," says Nidhi Dhruv, a Moody's Analyst and also Lead Analyst for Telekom Malaysia. "However, the retail broadband space is set to become more competitive this year, with more operators offering home broadband products, and introduction of the new LTE technology."
Nonetheless, Moody's expects Telekom Malaysia to maintain its leadership position, given its control over much of the fibre network. Continued push for broadband and data continues to offset the decline in Telekom Malaysia's voice-based revenues. Total broadband customers grew by 7.4% year-on-year and 1.9% quarter-on-quarter to 2.1 million customers as of December 2012. This trend is expected to continue, particularly given that broadband penetration rates in Malaysia are still low at about 64%.
Capex for 2012 was in line with expectations at RM2.5 billion or 25.5% of revenues. The company has guided to its capex/revenue ratio declining to about 24% in 2013, and further reduce to about 20% in 2014-2015.
Telekom Malaysia also declared its highest ever dividend of RM787 million, as compared to the minimum dividend payout of RM700 million in past years -- in line with its dividend policy.
"Over the years Telekom Malaysia has periodically returned surplus cash to shareholders through special dividends or capital returns, and given the company's strong cash position with RM3.7 billion as of December 2012, and limited capex requirements, we would not rule out further special shareholder payouts," adds Dhruv.
Moody's notes that Telekom Malaysia has RM2.0 billion of Islamic securities maturing in December 2013, but given the company's stated policy of keeping gross leverage at 2.0-2.5x, it is our expectation that Telekom Malaysia will opt to refinance this debt.
As a result of the high dividend policy and commitment to return excess cash to shareholders, cash flow metrics will continue to remain inconsistent with the current A3 rating. Furthermore, further HSBB investments will be made by Telekom Malaysia without any government grant, and which will further pressure its cash flow metrics.
In Moody's view, relatively higher leverage and weaker cash flow metrics can be sustained at the current A3 rating level because of Telekom Malaysia's relative cash flow stability, perceived support by the Malaysian government, and its dominant market position.