KUALA LUMPUR, Feb 24 ― Telekom Malaysia Bhd's (TM) 2016 financial results are in line with expectations and support its “A3” issuer and senior unsecured ratings and stable outlook, said Moody's Investors Service.

In a statement today, the rating agency said, the stable outlook reflected its expectation TM would continue to deliver on its business model and that growth in broadband revenues would continue to outweigh the decline in traditional voice-based results.

Moody's Vice-President/Senior Credit Officer, Annalisa di Chiara, said the agency expected TM to maintain a prudent financial policy with leverage in the two-2.5 times range over the next 18 months.

In 2016, TM's consolidated revenue grew by 2.9 per cent year-on-year (yoy) to RM12.1 billion, with Internet and data revenue up 8.9 per cent and 2.8 per cent yoy respectively, it said.

It said TM's traditional fixed line voice fell five per cent while non-voice services collectively represented 72 per cent of total revenues in 2016.

“Earnings before interest, tax, depreciation and amortization (EBITDA) rose by 2.5 per cent yoy to RM3.8 billion in line with the higher revenue, while EBITDA margin remained stable at 31 per cent,” it said.

Di Chiara said Moody's expected TM to maintain low single-digit EBITDA growth over the next two years, supported by continued growth in broadband, given that broadband penetration rates in Malaysia are still relatively low.

“However, material margin improvements are unlikely given competitive pressures, and the consolidation of its mobile data services ― Webe, which is EBITDA dilutive to its consolidated margin,” di Chiara said.

She said TM's estimated adjusted debt/EBITDA was 2.2 times at Dec 31, 2016, which was high for its 'a3 baseline credit assessment' but could be accommodated given the company's dominant market position and utility-like cash flows.

“Although we expect TM's leverage will rise in 2017, reflecting large capex (capital expenditure) requirements, high shareholder returns, and continued margin pressure notably due to Webe's lower margins, adjusted debt/EBITDA will remain below 2.5 times and within our expectations for the rating,” she said. ― Bernama