Bangkok--17 May--Fitch Ratings
Fitch Ratings has today affirmed Thailand-based Advanced Info Service Public Company Limited's (AIS) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB+', National Long-term Rating at 'AA(tha)', and National Short-term Rating at 'F1+(tha)'. At the same time, the agency has assigned AIS a Long-term local currency IDR at 'BBB+'. The Outlook is Stable.
The ratings of AIS reflect its strong financial profile and leading market position as Thailand's largest mobile operator, with a revenue market share of 52% in 2009. This is supported by its strong branding and extensive network coverage.
Although AIS's revenue declined mildly in 2009 due to the economic slowdown and market saturation, its earnings and cash flow remained strong with EBITDAR margin improving to 45.1% in 2009 from 42.1% in 2008. Its free cash flow also increased to THB10bn in 2009 from THB3.8bn in 2008, while adjusted net debt to EBITDAR improved to 0.3x at end-2009 and further to 0.04x at end-Q110 from 0.5x at end-2008.
AIS also benefited from a competitive cost structure as a result of its large subscriber base, although there is a risk that the interconnection framework could reduce AIS's cost competitiveness, given the reduction in regulatory-related costs of its competitors (i.e. the elimination of access charge payments).
Key credit concerns include the high capex cost associated with the technology upgrade to 3G. Although the timeframe of the 3G licence auction remains uncertain, Fitch believes that major mobile operators will eventually migrate to the 3G platform. A surge in capex for 3G network could weaken AIS's financial leverage during the initial network rollout; nonetheless, the agency believes that AIS's low financial leverage should provide flexibility to absorb new investment expenditure and/or lower margins. Other concerns include legal and regulatory uncertainty, as well as ongoing price competition in the Thai cellular market.
The Stable Outlook reflects Fitch's expectation that AIS should continue to generate solid earnings performance, as well as maintain its market share and financial leverage consistent with its current credit metrics, despite its large network investment plan for 3G over the next three years. The ratings could be positively impacted by a sustainable improvement in non-voice revenues, as well as sustainable positive free cash flow generation, accompanied by a substantial reduction in net debt. Conversely, the ratings could be negatively impacted by adverse changes in legal and regulatory structure, substantial increase in competition resulting in lower revenue and margins, higher-than-expected dividend payout and/or investment spending resulting in FFO adjusted net leverage of over 1.5x on a sustained basis, and a downgrade of Fitch's current 'BBB+' Country Ceiling for Thailand.
Applicable criteria available on Fitch's website at www.fitchratings.com: "Corporate Rating Methodology", dated 24 November 2009.
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Contacts: Obboon Thirachit, Bangkok, +662 655 4757; Pimrumpai Panyarachun, Bangkok, +662 655 4752; Matt Jamieson, Seoul, +822 3278 8355; Vincent Milton, +662 655 4759.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
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