Bangkok--16 Aug--TRIS Rating
TRIS Rating Co., Ltd. has assigned a “AA” rating to the proposed up to Bt13,000 million senior debentures of Advanced Info Service PLC (ADVANC). At the same time, TRIS Rating has also affirmed the ratings of ADVANC and its current debentures at “AA”. The rating outlook remains “stable”. The ratings are based on ADVANC’s dominant market position as Thailand’s leading mobile phone operator with an extensive customer base and strong cash generation ability even though its growth potential is quite limited in the intermediate term. The ratings also take into consideration ADVANC’s capable and professional management team, well-recognized brand name, and ability to control expenses. However, these strengths are partially offset by intense competition, which has led to industry-wide price cuts, and the inherent technological risk facing all operators. The ratings also take into consideration the company’s higher financial leverage in the intermediate term.
The “stable” outlook is based on the expectation that ADVANC will be able to sustain its strong operating performance as the market leader in the mobile phone service industry and through its experienced management team. TRIS Rating expects that the company’s financial profile in the intermediate term will deteriorate below its current status because of two main reasons: a huge capital expenditure plan to improve network quality and invest in new technology, and dividend payments that are higher than its historical record. The outlook is also based on expectation that management will balance interest of shareholders and lenders.
TRIS Rating reported that while the country’s total mobile subscriber base rapidly expanded from 1999-2004, the growth showed signs of slowing in 2005. The total number of mobile subscribers at the end of March 2006 was around 32 million, compared with 30 million at the end of 2005. Growth for the first three months of 2006 was 6% compared with an average 12% for the whole of 2005. With a penetration rate of 51% at the end of March 2006, there is still room for the Thai mobile market to grow but the growth rate will be slower than during the previous five years.
TRIS Rating said, ADVANC has maintained its leading position in the Thai mobile phone industry with approximately 52% market share (including subscribers of its subsidiary, Digital Phone Co., Ltd.). ADVANC’s experienced and capable management team and sufficient funding sources have enabled it to invest in a mobile phone network and internal systems to provide high quality services. The company will continue to benefit from its strong brand name, the highest network quality among all operators in Thailand, and efficient marketing efforts. ADVANC ended March 2006 with 16.6 million subscribers, an increase of 1.4% over year-end 2005, while the subscriber base grew by approximately 6% industry-wide.
With a dominant market position, strong financial position, ample financial flexibility to fund new investments, and a very strong brand name, ADVANC should be able to maintain its leading position in the Thai mobile phone industry.
ADVANC’s management team has a good track record of coping with the twin challenges of a changing competitive environment and technological development. It has successfully implemented various strategies to create long-term competitive advantages for the company. Because the penetration for mobile phones in Thailand is approaching the saturation rate, management plans to enhance revenue and profit by increasing the revenue contribution from non-voice services. ADVANC has a strong financial profile that is supported by a conservative financial policy and consistently strong operating results.
The company’s debt to capitalization ratio has continuously declined, from 50% at the end of 2002 to 22% at the end of March 2006. As it was able to benefit from economies of scale and the success of its cost control strategies, operating margin before depreciation and amortization remained high at 51% during the first three months of 2006. The ratio is unlikely to sustain so high as in 2005 in the future because of the concession fee for postpaid subscribers, which rose from 25% of revenue to 30% in October 2005, and the intensifying competitive environment. However, TRIS Rating expects that ADVANC is still able to generate strong internal cash generation. Funds from operations should be in the range of Bt35 billion-Bt40 billion during each of the next three years.