TRIS Rating Assigns Company Rating to “SAMTEL” at “BBB+” with “Stable” Outlook

TRIS Rating Co., Ltd. has assigned the company rating of Samart Telcoms PLC (SAMTEL)

at “BBB+” with “stable” outlook. The rating reflects strong competitive positions in network

services and IT solutions, an experienced management team, a moderate level of recurring

income, and established relationships with key clients and suppliers. The rating is partly

offset by fluctuations in the trading/turnkey business, concentration risk in project

owners, and the uncertainty surrounding government expenditures for IT development.

The “stable” outlook reflects the expectation that SAMTEL will remain competitive

when bidding for public projects and follow a prudent financing policy by retaining an

appropriate cushion when undertaking sizable projects. Given that SAMTEL is 70% owned by

Samart Corporation PLC (SAMART), its credit rating is inevitably influenced in part by the

quality of SAMART’s credit profile.

TRIS Rating reported that SAMTEL was founded by the Vilailuck family in 1986. At the

end of 2010, the company was 70% owned by Samart Corporation PLC (SAMART), a holding company

investing in telecommunications and communications networks and engineering services.

SAMTEL’s strong business profile reflects its leading position in Thailand as an integrated

IT solutions provider. The company has a proven record of undertaking a broad range of IT

projects. Its edge in undertaking government projects has improved quite noticeably over the

past few years, illustrated by its consecutive stream of successful bids. SAMTEL’s business

profile is supported by recurring income which adds a measure of stability to the overall

performance and reduces any liquidity shortfall during an industry downturn. In the short

run, revenues from turnkey projects will continue to dominate SAMTEL’s top line performance,

exposing the company to the effects of lumpy project sizes and changes in public IT budget

policies. In the medium term, the accumulation of successful completions of turnkey projects

should pay off appreciably in terms of renewable network maintenance agreements. The project

backlog at the end of 2010 was Bt3.65 billion. TRIS Rating believes that the company should

be able to continue securing a respectable number of projects so as to sustain its revenue

base in the range of Bt6-Bt8 billion per annum.

TRIS Rating said, SAMTEL’s risk profile is pressured by volatile performances from

turnkey projects, which add an element of variability to its cash flow. Fluctuations in

turnkey revenues reflect the nature of one-time projects that vary greatly in size.

Performance is also exposed to uncertainty and sometimes a lack of continuity in IT budgets

and spending from the public sector. In addition, SAMTEL’s credit profile is weighed down by

high concentration risk as its revenues depend heavily on projects for TOT.

TRIS Rating also said, prospects for demand for IT services are optimistic. An

expansion in economic activity should play a key role driving demand for data services. The

country’s network infrastructure is in a transition phase, changing from a packet-switching

infrastructure network to the Next Generation Network (NGN), an IP-based system. In the long

term, both the public and private sectors must upgrade their IT systems to remain

competitive in an environment which is moving toward higher levels of liberalization and

globalization.

SAMTEL’s operating margin has been under pressure since 2007 largely due to strong

growth in the lower-margin trading/turnkey projects. Intense competition in the

trading/turnkey business also exerts additional pressure on the company’s margins. The

profit margins in the long run could improve from maintenance agreements and network

capacity expansions that follow the previously completed turnkey projects. SAMTEL’s leverage

largely depends on the sizes of projects on hand. Most loans are secured by cash receipts

from the project owners. With the ratio of secured debts to total assets at 32% at the end

of 2010, SAMTEL’s issue rating for senior debts will likely be one notch below its company

rating, said TRIS Rating. -- End

Company Rating: BBB+ Rating Outlook: Stable Copyright 2011, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.