TRIS Rating affirms the company rating on True Corporation PLC (TRUE) and the ratings on TRUE?s senior unsecured debentures at ?BBB+?, with a ?stable? outlook. At the same time, TRIS Rating also affirms the rating on TRUE?s partially guaranteed debentures at ?A-?, based on the credit profiles of both the issuer (TRUE) and the guarantor, Kasikornbank PLC (KBANK) (rated ?AA+/Stable? by TRIS Rating*). KBANK?s partial guarantee covers 45% of the debentures? outstanding principal and accrued interest.
The ratings mirror TRUE?s strong business profile as a leading integrated telecom company in Thailand, its strong competitive position in both wireless communications and broadband internet services, as well as its satisfactory operating results. The ratings also embed our expectation of the ongoing support TRUE receives from the CP Group, its major shareholder, and China Mobile International Holdings Ltd. (China Mobile) as a strategic partner.
However, these strengths are held back by TRUE?s huge debt burden stemmed from the required capital expenditures for network expansion and scheduled payments of spectrum licenses. The ratings also take into consideration the fiercely competitive marketplace and the lingering effects of the Coronavirus Disease 2019 (COVID-19) pandemic.
KEY RATING CONSIDERATIONS
A leading integrated telecom service provider
TRUE has a strong business profile as a leading integrated telecom company in Thailand. The company is engaged in multiple business platforms, which includes wireless communication service, broadband internet, television (TV) networks, and digital platform and services. In 2020, TRUE arrived at THB138.2 billion in total operating revenue, of which THB107.2 billion was service revenues (excluding interconnection charges ? IC). Service revenues, excluding IC, grew by around 1.4% year-on-year (y-o-y), driven mainly by solid performance in wireless communications service and broadband internet service businesses. On the strengths of its extensive infrastructure and technological platform, we expect TRUE will be able to maintain its strong market position.
Second-largest mobile phone service operator
TRUE?s mobile phone service business is operated by its wholly-owned subsidiary, True Move H Universal Communication Co., Ltd. (TUC). TRUE has a strong competitive position, aided by its large-scale mobile network, robust spectrum portfolio, and quality of network. Across the Thai wireless communications industry, TRUE ranks second in view of the number of subscribers and service revenue. Its ?TrueMoveH? brand has been firmly established in the market. TrueMoveH held a service revenue market share of about 31% in 2020, rising from 28.8% in 2019 and 27.9% in 2018.
As of December 2020, TrueMoveH had 30.63 million subscribers, holding a 32.2% subscriber market share in Thailand. The expansion of its subscriber base, particularly in the prepaid segment, has been hindered by the fragile domestic economy, softened consumer spending, and the absence of foreign tourists.
Mobile phone service revenue growth outperformed market
Despite the impact of COVID-19, TrueMoveH?s service revenue in 2020, excluding IC, grew by 3.1% from 2019 to THB80.1 billion. At the same time, the total value of the Thai wireless communications market was about THB256.6 billion, a 3.3% contraction from the previous year. The growth of TrueMoveH?s service revenue was attributed mainly to the increased usage of data services as a result of the work-from-home phenomenon and a larger base of postpaid subscribers with a higher average revenue per user (ARPU).
In our base-case forecast for 2021-2023, we expect the service revenue, excluding the IC, in the wireless communications service business will grow by low single-digits. We believe the rising demand in data services will continue to be the revenue driver. We expect the migration of prepaid subscribers to the postpaid segment and an increasing number of high-data service users will continue to help uplift the overall ARPU. However, competition in the industry will likely remain intense as the market is saturated, with continued price-based competition to capture new subscribers. In addition, we expect the foreign tourist-related revenue such as travel subscriber identity module (SIM) and international roaming (IR) services industrywide will take time to recover to pre-COVID levels.
Broadband business growth driven by new normal behaviors
We anticipate TRUE will continue to maintain its market leader position in the broadband internet market, backed by the wide coverage of its fiber infrastructure network and hi-speed internet quality. ?TrueOnline?, TRUE?s broadband internet business, ranked first in the broadband internet segment in Thailand, with an approximately 36.5% market share at the end of September 2020.
The COVID-19 pandemic has shifted Thailand?s mainstream population?s behavior toward remote working and learning as well as entertainment at home. Consequently, the demand for home access to the internet has increased significantly. As of December 2020, TrueOnline?s broadband internet subscribers reached 4.2 million, up 0.4 million subscribers from 2019, despite intense competition in the market. Revenue from TRUE?s broadband service in 2020 totaled THB24.5 billion, up by 3.6% from the previous year. The sound performance was driven by a larger subscriber base, increasing demand for broadband internet services, and the bundling of broadband internet service with mobile phone service in convergence package offers to users.
In our base-case forecast for 2021-2023, we expect TrueOnline?s service revenue to grow by low single-digits, driven by a continued rise in demand for home-internet usages and the convergence package offers. However, we assume ARPU will remain under immense pressure from the competition in some highly competitive areas.
Cable TV business hurt by COVID-19
In 2020, service revenue from cable TV services, after inter-segment eliminations, fell by 14% y-o-y to THB8.3 billion, due to lower consumer spending in the hotel segment as well as the absence of entertainment and live-sport events during the period of worldwide lockdowns. However, there were signs of recovery in the revenue in the second half of 2020. In response to the cable TV revenue drop, the company has tried to control the content costs.
During the next three years, we expect the lingering COVID-19 fallout and changing behaviors of viewers will continue to impact the revenue of ?TrueVisions?. Viewers increasingly shift away from watching traditional TV broadcasting toward over-the-top (OTT) platforms. In response to the changing environment, TRUE has developed its own OTT platform, via TrueID application and TrueID TV box, and distributed the content on all platforms, including browsers, video streaming, applications, and TV boxes. The new content distribution platforms help boost its brand awareness and increase the chance to poach customers. Despite the tough business environment, we expect TrueVisions will continue its important role in TRUE?s convergence strategy to offer consumers with bundled mobile phone, broadband internet, and entertainment services in one package.
Cash flow expected to improve
During 2021-2023, we forecast TRUE?s total revenue to be in the range of THB139-THB145 billion per annum. We project its earnings before interest, taxes, depreciation and amortization (EBITDA) to be THB58-THB62 billion a year, with an EBITDA margin of 41%-43% led by low regulatory cost. TRUE?s profitability has been held back by its high operating costs and selling general and administrative expenses. TRUE has made a concerted commitment to productivity improvement, marketing strategies for niche-target customers, content cost reduction, and more online promotion campaigns. In all, we view TRUE?s earnings enhancement will largely hinge on effectiveness of its cost-cutting measures. The enlarged operating cash flow will help mitigate the impact of the company?s high financial burden. In our forecast, we project the company?s funds from operations (FFO) to be in the range of THB39-THB42 billion annually.
Financial leverage to stay high
The ratings on TRUE have been constrained by its highly leveraged financial risk profile. As of December 2020, its interest-bearing debt stood at about THB223 billion and adjusted net debt was around THB401 billion. The ratio of adjusted net debt to EBITDA was about 7 times. The FFO to adjusted net debt ratio stood at 9.6%.
During the next three years, we expect TRUE?s leverage to remain high, taking into account the large capital expenditures required for network investments and scheduled license fee payments. The company?s earnings are also weighed down by huge interest expenses. We forecast TRUE will spend THB39-THB43 billion a year in capital investments during 2021-2023. Additionally, TRUE is obliged to pay license fees of THB9-THB13 billion per annum over the same period. In effect, we forecast the net adjusted debt to EBITDA ratio to remain high at around 7 times, and the FFO to adjusted net debt ratio to stay about 10%.
As of December 2020, about half of TRUE?s consolidated debt was at the subsidiary level. TRUE gradually reduces the proportion of subsidiaries? debts to its consolidated debt, a bid to avert the structural subordination of TRUE?s senior unsecured obligations. To achieve that, the external borrowings by its subsidiaries will be partially replaced by inter-company loans from TRUE. In effect, we maintain the ratings on TRUE's senior unsecured debentures at the same level as the company rating assigned to TRUE.
Tight but manageable liquidity
We assess TRUE?s liquidity to be tight but manageable. A large part of the debt coming due in the next 12 months is expected to be refinanced. About THB64.5 billion in debentures and bank loans will come due in 2021 while we forecast TRUE?s capital spending will total about THB56 billion to support network expansion and scheduled license fee payments. The company also had current portion of lease obligation at THB12.7 billion. Meanwhile, sources of funds comprised cash and cash equivalents of THB24.5 billion as of December 2020 and expected FFO of around THB40 billion in 2021. Given TRUE?s strengthening market position and satisfactory performance, we view the refinancing risk is manageable.
Guarantor?s credit profile
The rating on KBANK stands at ?AA+? with a ?stable? outlook. The rating reflects the bank?s competitive position as the second-largest commercial banks in Thailand by assets as well as its well-diversified portfolio, strong capital position, and above-average profitability. The rating also takes into consideration its superior funding and liquidity profile. However, the rating is constrained by its relatively high exposure to the small and medium enterprise (SME) segment, which poses a relatively high asset quality risk compared with other loan segments during the economic downturn.
BASE-CASE ASSUMPTIONS
? Service revenues in mobile service and broadband internet to grow by low-single digits during 2021-2023, while the cable TV service revenue to remain under pressure from the COVID-19 fallout and changes in consumer behaviors.
? The EBITDA margin to stay at 41%-43% during the next three years.
? Total capital spending of about THB39-TH43 billion per annum to roll out the network during the next three years.
? Scheduled license fee payments of THB9-THB13 billion per annum during 2021-2023.
? No additional mobile spectrum to be acquired.
RATING OUTLOOK
The ?stable? outlook embeds our expectation that TRUE will sustain its strong market position and continue to deliver sound operating results in its wireless communications and broadband internet businesses. We also expect TRUE to receive ongoing support from the CP Group and China Mobile. This support strengthens TRUE?s credit profile.
RATING SENSITIVITIES
The ratings are unlikely to be upgraded in the next 12-18 months, taking into account TRUE?s debt-heavy capital structure. However, a rating upgrade scenario could develop from a significant improvement in TRUE?s operating cash flow and substantial reduction in its financial leverage. Contrarily, downward pressure on the ratings could emerge if TRUE?s operating performance deteriorates materially, pushing the adjusted ratio of FFO to debt below 5% on a sustained basis.
Despite the settlement of several major disputes and litigations such as access charges and IC in connection to TRUE?s wireless communications services, there are still a number of ongoing litigations that will likely take time to resolve. A downward revision to the ratings could occur if there are new developments on these pending legal issues that suggest potential material adverse effects on TRUE?s financial profile.
COMPANY OVERVIEW
TRUE was incorporated in 1990. The company has three business segments: TrueMoveH, providing mobile services; TrueOnline, providing broadband internet; and TrueVisions, offering pay TV services and two digital TV channels. In 2020, the three lines of business contributed 76%, 18%, and 6% of its revenue, respectively.
TRUE?s credit ratings are strengthened by support from its two major shareholders. CP Group, one of Thailand?s leading conglomerates, holds about 50% of TRUE, followed by China Mobile with an 18% ownership stake. China Mobile is the world's largest mobile operator by number of subscribers.
RELATED CRITERIA
- Group Rating Methodology, 13 January 2021
- Rating Methodology ? Corporate, 26 July 2019
- Key Financial Ratios and Adjustments, 5 September 2018
True Corporation PLC (TRUE)
Company Rating: BBB+
Issue Ratings
TRUE215A: THB5,224.30 million senior unsecured debentures due 2021 BBB+
TRUE215B: THB500 million senior unsecured debentures due 2021 BBB+
TRUE217A: THB1,625 million senior unsecured debentures due 2021 BBB+
TRUE217B: THB9,000 million senior unsecured debentures due 2021 BBB+
TRUE21OA: THB3,360 million senior unsecured debentures due 2021 BBB+
TRUE221A: THB12,246 million senior unsecured debentures due 2022 BBB+
TRUE221B: THB100 million senior unsecured debentures due 2022 BBB+
TRUE224A: THB5,922 million senior unsecured debentures due 2022 BBB+
TRUE225A: THB300 million senior unsecured debentures due 2022 BBB+
TRUE227A: THB945 million senior unsecured debentures due 2022 BBB+
TRUE228A: THB5,799.10 million senior unsecured debentures due 2022 BBB+
TRUE228B: THB830 million senior unsecured debentures due 2022 BBB+
TRUE232A: THB4,330 million senior unsecured debentures due 2023 BBB+
TRUE237A: THB6,394.60 million senior unsecured debentures due 2023 BBB+
TRUE239A: THB4,800 million senior unsecured debentures due 2023 BBB+
TRUE23NA: THB7,438.90 million senior unsecured debentures due 2023 BBB+
TRUE248A: THB11,841.60 million senior unsecured debentures due 2024 BBB+
TRUE24OA: THB1,325 million senior unsecured debentures due 2024 BBB+
TRUE24NA: THB4,268.70 million senior unsecured debentures due 2024 BBB+
TRUE251A: THB3,994.20 million senior unsecured debentures due 2025 BBB+
TRUE258A: THB650 million senior unsecured debentures due 2025 BBB+
TRUE25NA: THB2,486.60 million senior unsecured debentures due 2025 BBB+
TRUE261A: THB7,130.30 million senior unsecured debentures due 2026 BBB+
TRUE26NA: THB5,805.80 million senior unsecured debentures due 2026 BBB+
TRUE22NA: THB8,330 million partially guaranteed debentures due 2022 A-
Up to THB22,000 million senior unsecured debentures due within 6 years BBB+
Rating Outlook: Stable