Bangkok--27 Oct--Fitch Ratings
Fitch Ratings has affirmed Thailand-based telecom company Advanced Info Service Public Company Limited’s (AIS) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at ‘BBB+’, with Stable Outlook.
The agency has also affirmed its National Long-Term Rating at ‘AA+(tha)’ with Stable Outlook and National Short-Term Rating at ‘F1+(tha)’.
KEY RATING DRIVERS
Slow Revenue Growth: Fitch expects AIS’s service revenue growth to slow to a flat to mid-single digit rate in 2014 and 2015. Strong data revenue growth is likely to continue, but could be largely offset by a decline in voice revenue due to intense competition in a saturated market.
Margin Improvement: AIS’s operating EBITDAR margin is likely to improve to 46%-50% during 2014 and 2015 (2013: 45.1%). This is mainly supported by lower regulatory costs as more subscribers and mobile traffic move to the new 3G network. We expect regulatory cost as a percentage of service revenue to drop to around 18% in 2014 from 23.5% in 2013. However, the cost savings could be partly offset by higher marketing expenses because AIS is likely to continue promoting 3G handsets and data usage.
Flexibility to Support Investment: AIS’s free cash flow (FCF) is likely to be negative in 2014 and 2015 due to sustained high capex for 3G network expansion. Financial leverage will increase as a result, but we expect AIS’s credit profile to remain commensurate with its current ratings. Rating headroom is currently large - funds flow from operations (FFO)-adjusted net leverage was 0.45x at end-1H14 (Fitch forecasts 0.8x at end-2014) - which should provide financial flexibility to support the investment.
Leading Market Position: AIS has consistently maintained its strong market position as the largest mobile phone operator in Thailand over the past several years. Fitch believes that AIS should be able to maintain its service revenue market share of over 50% over the medium term (2013: 52.5%). The company benefits from a competitive cost structure due to its large subscriber base. AIS’s market position is also supported by its strong brand and extensive network coverage.
RATING SENSITIVITIES
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- an increase in FFO-adjusted net leverage above 1.5x on a sustained basis
- unfavourable regulatory changes
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- sustained positive free cash flow
- Operating EBITDAR dominated by the licensed 3G business
- Operating EBITDAR margin above 45% on sustained basis (2013: 45.1%)