Bangkok--2 Dec--Fitch Ratings
Fitch Ratings (Thailand) Limited says that GMM Grammy Public Company Limited’s (GMM; BBB+(tha)/Positive) THB2.2bn equity raising in November 2014 is positive for the company’s financial profile. However, the benefit is insufficient to lead to a rating upgrade as the company still faces risks in successfully rolling out its digital TV business, which could lead to the slower-than-expected deleveraging and cash flow growth.
The recent capital injection will help improve GMM’s financial profile; Fitch expects GMM’s net debt to reduce to about THB3.0bn at end-2014 from THB4.5bn at end-9M14. Nevertheless, GMM’s financial leverage will remain high at end-2014 due to weak operating cash flows, as the digital TV business is likely to report a loss in 2014.
Fitch believes that successfully developing GMM’s digital TV business will remain a challenge over the next six to 12 months as the company needs to produce new quality programmes, build up a viewer base and attract advertisers. In addition, the new digital TV channels have increased advertising airtime, which is likely to place pressure on advertising rates as competition for advertisers becomes more intense.
Over the past six months, GMM’s digital TV advertising revenue was lower than we had expected due to slow viewer adoption of the new digital TV platform. However, we expect the adoption rate to increase rapidly in 2015 and 2016 after the regulator began to distribute subsidy coupons in October 2014.
The Positive Outlook on GMM’s rating continues to reflect Fitch's expectation that GMM’s earnings and financial leverage will improve from 2015 onward as revenue from digital TV starts to increase. Fitch forecasts GMM's FFO-adjusted net leverage to fall below 3.5x in 2015 and 2016 from the expected negative FFO at end-2014. However, before upgrading GMM’s rating to ‘A-(tha)’, Fitch would expect GMM to demonstrate strong cash flow generation from its digital TV business and have forecast positive free cash flow on a sustained basis.