Bangkok--12 Nov--Fitch Ratings
Fitch Ratings says in a special report released today that service revenue for Thailand’s three largest mobile phone operators is likely to grow at a low single-digit rate in 2015, supported by improvement in the economy. Voice revenue will continue to decline, but at a slower pace. Non-voice revenue will continue to grow strongly, which should be enough to offset the decline in voice revenue.
Despite slow revenue growth, earnings and cash flow from operations will grow strongly in 2015 for the major mobile phone operators - Advanced Info Service Public Company Limited (AIS; BBB+/Stable), Total Access Communication Public Company Limited (DTAC; BBB/Positive) and True Corporation Public Company Limited’s mobile business (not rated). Earnings growth will be supported by regulatory cost savings under the 3G licensing framework compared to the 2G concession framework.
Fitch forecasts aggregate regulatory cost as a percentage of service revenue will fall by 4pp-5pp in 2015. However, the cost savings could be partly offset by higher marketing expenses due to intense competition. We expect the major operators will continue to offer aggressive promotions to increase 3G handset/smartphone penetration and adoption of data usage, while defending market share.
Free cash flow is likely to be negative for the major mobile operators in 2015 mainly due to high capex required to build the 3G networks and investment in 4G spectrum. Financial leverage will increase, but the ratings of the telcos already incorporate the likelihood of low EBITDA growth and a decline in credit metrics.
The largest two operators, AIS and DTAC, have plenty of ratings headroom and sufficient financial flexibility during the investment cycle.
The report, “2015 Outlook: Thai Telecommunications”, is available on www.fitchratings.com or by clicking on the link above.