TRIS Rating has assigned a rating of “A-” to the proposed issue of up to Bt5,000 million in senior debentures of Thaicom PLC (THCOM). At the same time, TRIS Rating has affirmed the company and current senior unsecured debenture ratings of THCOM at “A-”. The outlook remains “stable”. The new issue rating replaces the issue rating assigned on 6 June 2014 to a bond issue of up to Bt4,000 million, following THCOM’s request to increase the issue size to up to Bt5,000 million. The proceeds from the new debentures will be used for the investment in Thaicom7 and debt refinancing. The ratings reflect THCOM’s strong market position as the sole satellite communications service provider in Thailand, increase in transponder capacity from its new satellites, improving performance, and the potential demand for satellite communication services in Thailand and neighboring countries. However, these strengths are partially constrained by competition in overseas markets, the complicated regulatory regimes inherent in the satellite industry, and the large capital expenditures needed to launch new satellites. The “stable” outlook is based on the expectation that THCOM will continue to maintain its strong market position and deliver solid operating performance. The ratings could be under downward pressure if THCOM’s debt to capitalization ratio rises above 50%.
THCOM was established in 1991 and was listed on the Stock Exchange of Thailand (SET) in 1994. Intouch Holdings PLC (INTUCH) was THCOM’s major shareholder with a 41% stake as of April 2014. THCOM operates three geosynchronous satellites: two conventional satellites (Thaicom5 and Thaicom6) and a broadband satellite (Thaicom4, or IPSTAR). THCOM also invests in telecommunication business in Lao People's Democratic Republic (Lao PDR), and media services. THCOM’s revenue was Bt7,896 million in 2013, rising by 9% from 2012, and stood at Bt2,374 million (excluding construction revenue under operating agreement) for the first three months of 2014. The conventional satellite segment contributed 43% of total revenue in 2013. Revenue from the IPSTAR contributed about 45%. Customers of THCOM’s conventional satellite services are primarily located in Thailand and neighboring countries. IPSTAR’s customers are mainly in Thailand, Australia, Japan, India, Malaysia, and China.
THCOM’s strong business profile is supported by the high barriers to entry of satellite industry, such as a limited number of orbital slots, large capital investments, and complicated regulatory processes. Revenue of the satellite segment is secured mostly by the contracts of three to 10 years. Growth prospects hinge on the opportunities such as broadcasting and broadband businesses.
After Thaicom6 was launched in January 2014, the number of TV channels using THCOM’s conventional satellites rose markedly to 667 channels at the end of March 2014, compared with 465 in 2012 and 427 channels in 2011. Demand for satellite transponders for broadcasting in Thailand is expected to remain strong, driven by the “Must Carry” rule and high-definition (HD) channels. As of March 2014, THCOM had backlog (future revenue according to existing contracts) of conventional satellites worth US$632 million or about Bt20 billion. THCOM plans to launch a new conventional satellite, Thaicom7, in mid-2014. As of March of 2014, THCOM had pre-sold about 40% of the capacity of Thaicom7. This satellite will mainly provide communication services in Thailand and neighboring countries. THCOM also expects to launch Thaicom8 in the first half of 2016.
THCOM is the only broadband satellite service providers in the Asia-Pacific region. The company has focused on selling IPSTAR’s bandwidth to telecom companies, business enterprises, and government projects. IPSTAR’s bandwidth utilization rate rose from 25.2% at the end of 2012 to 53.4% at the end of 2013. The rise in utilization was mainly due to increased deployment in China, Thailand, and India. In late 2013, THCOM sold all of IPSTAR’s bandwidth allocated to China, or equal to 24% of total capacity, in exchange for minimum fee and revenue sharing. IPSTAR’s revenue for the first three months of 2014 was Bt1,043 million, compared with Bt808 million from the same period last year.
The financial profile of THCOM has improved during the last few years, underpinned by stronger ability to generate cash flows and satisfactory level of financial leverage. During 2014-2016, TRIS Rating’s base-case expects THCOM to generate revenue in a range of Bt10-Bt12 billion per annum. The growth drivers are higher utilization in Thaicom6 and the launches of Thaicom7 and Thaicom8. The operating margin (or operating income before depreciation and amortization as a percentage of sales) ranged from 47%-53% during 2011 through 2013. The operating margin was boosted by more services on the IPSTAR satellite. However, the operating margin dropped to 45% for the first three months of 2014 due mainly to the rental expenses for the interim Thaicom6 satellite. During 2014-2016, the operating margins are expected to stay at 45%-48%, on the back of larger revenue base. Funds from operations (FFO) in 2013 increased to Bt3,398 million per annum, compared with Bt2,800 million in 2012. During 2014-2016, TRIS Rating’s base case expects FFO will range from Bt4,000-Bt5,000 million per annum. The FFO to total debt ratio is expected to stay above 40% during the same period.
THCOM’s capital structure has improved during the last two years. The debt to capitalization ratio was about 35% during 2012 and 2013, compared with 42% in 2011. TRIS Rating expects THCOM to spend about Bt10,000 million in total of capital expenditures during 2014-2016, to mainly fund the investment in Thaicom7 and Thaicom8 satellites. TRIS Rating views that THCOM’s leverage will rise during 2014-2016, to support its growth plan. However, with healthier operating performance, THCOM is expected to partly fund its capital expenditures by its internal cash flows. As a result, the debt to capitalization ratio is expected to stay below 45% during 2014-2016.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2014, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.