Bangkok--16 Feb--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the ratings of Advanced Info Service PLC (ADVANC) and its senior debentures (AIS073A, AIS07OA, AIS093A, AIS093B, AIS099A, AIS119A, AIS139A) at “AA” with “stable” outlook. The ratings are based on ADVANC’s dominant market position as Thailand’s leading mobile phone operator with an extensive subscriber base and well-recognized brand name. The ratings also take into consideration ADVANC’s capable and professional management team, its strong financial profile, and strong cash generating capability. However, these strengths are partially constrained by the continuation of intense competition among the three major mobile operators, inherent technological risk, and uncertainties related to telecom regulations.
The “stable” rating outlook is based on the expectation that ADVANC will sustain its strong operating performance and continue to pursue a conservative financial policy. In addition, any regulatory policy changes are not expected to adversely impact the company’s competitive advantages and financial performance.
TRIS Rating reported that the number of mobile phone subscribers in Thailand expanded rapidly at an average growth rate of 60% per annum during 1999-2004. The growth rate slowed in 2005 to 12% as mobile penetration rate reached 49% of the total population. However, heavy competitive environment in 2006, including free SIM-cards and price undercutting campaigns, propelled subscriber growth to nearly 30%. The total number of new subscribers was almost twice that of 2005. In 2006, the penetration rate increased to over 60%. The solid subscriber growth was mainly driven by a number of mobile users having multiple SIM-cards and the expansion of the mobile network to capture new users upcountry. The number of mobile phone subscribers are expected to continue growing, though not at the level experienced in 2006, with the penetration rate projected to reach 70% within the next two years.
TRIS Rating said, ADVANC continues to maintain its leader position in the mobile industry with a market share of approximately 50%. As of September 2006, it had 17.7 million subscribers, an increase of 8% from year end 2005. The combination of ADVANC’s experienced and capable management team and sufficient funding sources have enabled the company to provide high quality services through extensive investments in the mobile phone network and internal systems. The company will continue to benefit from its strong brand name, ubiquitous and high quality network, and efficient marketing efforts. With its dominant market position, strong financial profile, and ample financial flexibility to fund new investments, 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 dealing with the twin challenges of changing competitive environment and the advent of new technologies. The company has successfully implemented various strategies to create long-term competitive advantages. The company plans to enhance its revenue and profit by increasing the revenue contribution from non-voice services since the penetration rate of mobile phones in Thailand is approaching the saturation point.
ADVANC’s strong financial profile is underpinned by a conservative financial policy and strong cash flow generation. The company’s debt to capitalization ratio was 31.1% at the end of September 2006. Economies of scale and cost control initiatives have allowed the company to keep operating margins before depreciation and amortization above 45% during the last three years. Although the competitive environment is likely to challenge ADVANC’s profitability and cash flows, TRIS Rating views that ADVANC’s financial flexibility provides a sufficient cushion for network investments and dividend payouts.