Standard & Poor's base-case scenario
Standard & Poor's Ratings Services' base-case scenario for TM forecasts the
company's debt-to-EBITDA ratio at about 2.0x, debt-to-capital ratio at less
than 50%, and a ratio of funds from operations (FFO) to debt at more than 45%
over the next three years. Our projections are based on the following
-- Revenue growth will be 5.6% in 2012 and will slow down to 3.4% in
2014. This is based on our expectation that: (1) revenue growth in voice
services will be flat-to-marginally-negative; (2) growth in internet and
multimedia services will be 20% in 2012 and slide to 12% in 2014; and (3)
growth in data services will be 6% in 2012 and decline to 4% in 2014.
-- EBITDA margins will decline to 31% in 2012 and remain at 30%-31% for
the next two years, based on our expectation of higher maintenance costs.
-- We expect capital expenditure to fall to MYR2.6 billion in 2012, to
MYR2.3 billion in 2013, and to MYR1.8 billion in 2014. The decline is on
account of the discretionary nature of HSBB rollout going forward, with the
company having achieved the rollout requirement under the public private
partnership with the government.
-- We have assumed a 90% dividend payout ratio for the three years.
We assess TM's liquidity as "strong," as defined in our criteria. We expect
the company's ratio of sources of liquidity to uses to be more than 1.5x
during the next 12 months and 1x in the subsequent 12 months. We anticipate
that TM's net liquidity sources will remain positive even if EBITDA declines
by 30%. Our liquidity assessment is based on the following factors and
-- Liquidity sources include cash balance of MYR2.7 billion as of June
30, 2012, and our projection of FFO of about MYR2.9 billion annually over the
next two years.
-- Uses of liquidity include debt of MYR7.7 million due in the next 12
months and MYR2 billion in the subsequent 12 months. It also includes capital
repayment of MYR1.1 billion paid in August 2012.
-- Uses also include our expectation of maintenance capital expenditure
of MYR1.5 billion, and our expectation of dividend distribution of MYR0.7
billion annually, even in case of stress.
The stable outlook reflects our view that the growth in TM's nonvoice
services, mainly from broadband and data, will continue to offset the
gradually declining revenue from its fixed-line telephony operations. The
outlook also factors in our expectation that debt will not materially increase
to fund either capital expenditure or any special dividend payments.
We could lower the rating on TM if higher-than-anticipated capital spending
and dividend payouts weaken the company's financial metrics, such that the
ratio of debt to EBITDA approaches 2.5x.
We may raise the rating if the company completes the HSBB rollout, maintains
robust profitability and margins, preserves its strong liquidity, and improves
its financial performance, such that it has a ratio of debt to EBITDA of less
than 1.5x on a sustained basis.
The long-term local currency rating on TM will not be affected if we lower or
raise the local currency sovereign rating on Malaysia by one notch. But a
lowering of the long-term foreign currency sovereign rating could prompt us to
lower the long-term foreign currency rating on the company.