TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Thaicom PLC (THCOM) at “BBB+” with “stable” outlook. The ratings reflect THCOM’s market strength as the sole satellite communications service provider in Thailand, the business value of the telecom investment portfolio, prospective broadband satellite results in the domestic and Australian markets, and the benefits from strong group support. The ratings are partially offset by intense competition in overseas markets, high operating and regulatory risks inherent in the satellite industry, and uncertainty surrounding the prospect of broadband satellite in key foreign markets. The unresolved regulatory disputes concerning the conventional satellite business could negatively affect the overall operating performance and business profile of the company.
The “stable” outlook reflects the expectation that THCOM will continue to maintain its market strengths and generate stable cash flows from conventional satellite services and telecom businesses in Indochina. The delay of IPSTAR’s success in the overseas market remains a key negative factor to the ratings.
TRIS Rating reported that THCOM, formerly named Shin Satellite PLC (SATTEL), operates three geosynchronous satellites, two of which are conventional and another is a broadband satellite (named IPSTAR). THCOM’s total revenue for the first three months of 2010 was Bt1,784 million. The conventional satellites contributed about 36% of total revenue. IPSTAR contributed around 31%, while the telecom business contributed a third of total revenue. Customers of THCOM conventional satellite services are primarily located in Thailand and neighboring countries. IPSTAR customers are mainly based in Thailand and Australia. A strong business profile is underpinned by the company’s leading position as a satellite service provider in Thailand. THCOM’s competitiveness is secured by high barriers to entry and capital requirements.
TRIS Rating said, THCOM’s favourable position in the domestic and overseas markets has stabilized operating cash flow. The ratings factor in the expectation that Shin Corporation PLC (SHIN), THCOM’s major shareholder, will continue to provide the necessary strategic support so as to help enhance the company’s overall business profile. In addition, the operating performances of the telecom businesses in Indochina (Laos and Cambodia) further enhance THCOM’s business profile. TRIS Rating expects the growth momentum to continue, leading to stable cash flows in the medium term. The ratings also take into consideration the growing IPSTAR’s business. The utilization of IPSTAR has so far been derived from providing service in Australia and Thailand. The execution of commercializing IPSTAR in the Indian market, expected during the third quarter of 2010, will be one supportive factor to the ratings. Construction of the IPSTAR gateway in Japan was completed in mid-2009. A Japanese telecom customer signed an agreement to buy a bulk bandwidth of IPSTAR in Japan starting from 1 April 2010. Thus, the Japanese market is another key revenue contributor in the future. However, IPSTAR’s prospect is constrained by uncertainty surrounding the extent and timing of revenue from the Chinese market. Further evidence is required to prove the competitiveness of IPSTAR in the Chinese telecom market. Success will depend on a large extent on management’s ability to offer attractive solution packages for a strategic partner.
The financial profile of THCOM is characterized as margins under pressure, stable cash flows, moderate leverage, and acceptable liquidity. Operating income as a percentage of sales has been hurt by IPSTAR and ranged 36%-37% for the past two years. The operating income margin for the first three months of 2010 dropped further to 30% of total revenue. The fall was mainly from a drop in the profit margin of telephone business in Cambodia due to fierce competition. However, funds from operations (FFO) remains strong at Bt2,004 million in 2009 and Bt416 million for the first three months of 2010.
The FFO to total debt ratio slightly increased from 18.7% in 2008 to 21% in 2009 and stood at 4.7% (non-annualized) at the end of March 2010. THCOM’s financial leverage slightly improved as measured by a drop in the total debt to capitalization ratio. However, future funding requirement could raise a concern. THCOM have debenture redemption of Bt3,300 million due in 2012. In addition, it is possible that THCOM will need to invest in a new satellite, worth up to Bt4,000 million during 2011-2012.
High operating and regulatory risks are inherent in the satellite industry. Unclear regulatory directions remain a negative factor to the performance of operators. TRIS Rating will pay close attention to the regulatory factors and disputes that might adversely affect THCOM’s business profile and thus the credit ratings. -- End
Company Rating: Affirmed at BBB+ Issue Ratings: THCOM12NA: Bt3,300 million senior debentures due 2012 Affirmed at BBB+ THCOM14NA: Bt3,700 million senior debentures due 2014 Affirmed at BBB+ Rating Outlook: Stable
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