Bangkok--13 Sep--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of Total Access Communication PLC (DTAC) at “AA-” with “stable” outlook. The rating reflects its strong market position as the second-largest cellular phone service provider in Thailand in terms of revenue and number of subscribers. The rating also takes into consideration the company’s extensive network coverage, its established brand equity, and its proficient management team. These strengths are partially constrained by a competitive market environment and uncertainties surrounding telecom regulations. The “stable” outlook is based on the expectation that DTAC will continue to maintain its strong market position and keep consumer confidence on its network quality. TRIS Rating also expects DTAC to maintain a sufficient cushion throughout the investment period.
TRIS Rating reported that DTAC holds a strong market position as the second-largest cellular phone service provider in Thailand, with around a 30% share of subscribers. At the end of June 2012, DTAC had a total of 23.6 million subscribers and generated revenue of Bt44,158 million for the first half of 2012. DTAC’s business strength is further supported by its established brand equity and an extensive network, both of which enhance its competitive position. The company also benefits from the managerial assistance of Telenor ASA (Telenor), a leading Norwegian telecommunication company.
TRIS Rating said, DTAC’s service revenues, excluding the Interconnection Charge (IC), rose by
6%-8% year-on-year (y-o-y) in 2011 and for the first half of 2012. The rises were driven by strong growth in data services revenue. Robust prospects of data usage, supported by the popularity of smart phones and social networking applications, could partly offset the saturated voice service revenue. Operating margins (excluding IC) as a percentage of sales for the past three years ranged between39%-43%. However, the margin for the first six months of 2012 fell to 35%, due mainly to the increase of revenue sharing costs.
DTAC’s financial strength is underpinned by good operating performance, growing cash flow, and ample liquidity. Funds from operations (FFOs) rose from Bt21,406 million in 2010 to Bt23,679 million in 2011. For the first six months of 2012, the company generated FFOs of Bt10,645 million. DTAC has changed its dividend payout policy from at least 50% of net profit, to at least 80%, and payable quarterly. In 2011, DTAC announced an aggressive extraordinary dividend payout which significantly reduced its equity base from Bt68,878 million at the end of 2010 to Bt34,888 million at the end of 2011. The company partly financed the mentioned dividend by debt. As a result, the level of debt rose from Bt4,589 million in 2011 to Bt21,929 million at the end of June 2012. The debt to capitalization ratio jumped to 36.9% as of June 2012, compared with an abnormally low level of about 11.5% at the end of 2010 and 2011. The liquidity profile, though it has softened recently, remains strong. In the medium term, DTAC’s leverage is expected to continue rising as the third-generation (3G) investment schedule becomes more certain. DTAC’s operating cash flow will be used primarily for dividend payment and to service existing debts. TRIS Rating expects DTAC to balance the payout ratio with the need to retain cash for future investments and demonstrate an adequate financial cushion.
The 3G license auction is scheduled in mid-October 2012, which will stimulate new investment cycle. Huge capital expenditures for the 3G network are expected in the short to medium term. DTAC has planned capital expenditure of approximately Bt40,000-Bt45,000 million for network rollout during 2012-2015 on top of the 3G license cost. DTAC’s strong relationships with financial institutions are expected to provide the company with a sufficient financial flexibility for its future capital expenditure requirements for the 3G network. However, the rating could be under pressure if the funding requirements for the 3G rollout, or other factors, push leverage higher than expected and significantly weaken the company’s balance sheet.
The intermittent service disruptions during the network swaps have hurt DTAC’s brand image and have caused the industry regulator to assess penalties. Network quality issues are expected to gradually subside. DTAC plans to complete the network swaps nationwide by the end of 2012. After the network upgrade, the network quality will improve and DTAC will realize greater cost efficiency.
The wireless industry service revenue (excluding IC) in 2011 and for the first half of 2012 remained strong. Revenue in this industry grew by nearly 11% y-o-y in 2011 and for the first six months of 2012. Revenue for 2012 is expected to keep the growth pace on the back of strong growth in value-added services (VAS). The popularity of smart phones, tablets, social networking applications, and mobile Internet has enhanced a high potential for the non-voice market segment. The competition in the non-voice segment is expected to intensify after the 3G license grant, said TRIS Rating.
Total Access Communication PLC (DTAC)
Company Rating: Affirmed at AA-
Rating Outlook: Stable