KUALA LUMPUR: FITCH Ratings has affirmed Telekom Malaysia Bhd’s (TM) long-term foreign-currency issuer default rating at 'A-', and revised the outlook to stable from negative.
This follows Fitch's revision of the outlook on the Malaysian sovereign to stable from negative late last night.
The negative outlook on the sovereign had been the reason for the previous negative outlook on TM, it said.
The A-rating for TM is based on a single-notch uplift from its standalone credit profile of 'BBB+', to reflect the majority state-ownership of 56 per cent as at end-June 2015 through Khazanah Nasional Bhd, the Employees Provident Fund, and Amanah Raya Trustees Bhd.
It said the fixed-line incumbent continues to be strategically important to the government, and Khazanah exercises significant influence on TM's strategic and operational decisions through board representation.
It warned of higher leverage, saying it expects the 2015 funds flow from operations - adjusted net leverage to rise to 1.8 times and near the negative rating action at above 2.0 times level.
It has also forecast 2015 funds from operations (FFO) of RM3.1 billion, which may be insufficient to fully cover the RM2.6 billion and RM0.9 billion dividends.
Although the wireless will drag on its profitability, it said continuing growth in TM's fibre network-based services should continue to drive EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) expansion.
TM has set a target for the non-wireless business to grow by 4.0 per cent-4.4 per cent in 2015 in terms of revenue and EBIT.
The rating agency expects the capital expenditure to rise to RM2.6 billion-RM2.8 billion which makes up 21 per cent-22 per cent of revenue.
It also expects the expansion of TM's fibre business to continue due to low fibre penetration and rational competition.
Rapid migration by consumers on to higher-speed broadband plans, and the rising adoption of triple-play services (which comprise voice, broadband and Internet protocol TV services), should continue to drive an increase in average revenue per user (ARPU) from the fibre business.
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