Bangkok--2 Feb--Fitch Ratings
Total Access Communication Public Company Limited's (DTAC; BBB/AA(tha)/Stable) announcement that no annual dividend will be paid for 2016's performance is a sign of management's commitment to control financial leverage amid strong competition and upcoming spectrum investment, Fitch Ratings says.
Nevertheless, DTAC's weakened market position - with earnings and service revenue market share declining over the past few years - is likely to remain a key credit concern in the medium term.
The suspension of the dividend payment will alleviate medium-term concerns as DTAC can prepare for a potentially large spectrum investment in 2018. Fitch expects DTAC's free cash flow to be positive in 2017 without the dividend payment; its cash flow from operations of around THB25bn will cover capex of THB17bn-20bn. FFO-adjusted net leverage is likely to improve as a result to around 1.6x in 2017 from 1.9x in 2016, which should provide a buffer to support network and spectrum investments in 2018. DTAC's financial leverage is likely to surge in 2018 but should remain below 2.5x, in line with its current ratings.
DTAC needs to secure new spectrum in the medium term to replace its concession spectrum and support rapid traffic growth, while maintaining service quality. Most of its spectrum (35MHz) is under the concession regime, which will expire in 2018, although DTAC's spectrum portfolio remains large at 50MHz. Its 15MHz of spectrum under the licence regime on the 2.1GHz band may not be enough to support the rapid increase in mobile traffic and technology upgrades in the medium term.
We expect DTAC's market position to remain under pressure in 2017 due to tough competition. The company's competitors are likely to continue aggressive marketing strategies to increase their market shares. Fitch expects the largest operator, Advanced Info Service Public Company Limited (AIS; BBB+/AA+(tha)/Stable) to return to revenue market share of over 50% after its share fell below 50% in 2Q16. True Corporation Public Company Limited's mobile business, True Mobile, is the country's third-largest operator and Fitch expects it to continue acquiring market share as it aims to become number two.
Fitch expects DTAC's service revenue (excluding interconnection revenue) to continue to decline at a low-single-digit rate in 2017 (2016: down 2.3%), as the company's market share continues to shrink due to intense competition. DTAC's service revenue has fallen year-on-year for the 11 quarters to 4Q16 and its service revenue market share declined to around 26% in 3Q16 (2014: 30%; 2015: 29%). In 4Q16, DTAC lost 340,000 subscribers to other operators.