TRIS Rating Co., Ltd. has affirmed the company rating and the senior debentures ratings of Advanced Info Service PLC (ADVANC) at “AA” with “stable” outlook. The ratings are based on ADVANC’s leading market position in the Thai cellular market, its extensive subscriber base, and strong brand equity. The ratings also take into consideration the company’s capable and professional management team as well as strong financial profile and cash generating capability. However, these strengths are partially constrained by competitive market environment and uncertainties related to telecom regulations.
The “stable” outlook is based on the expectation that ADVANC will sustain its strong operating performance and liquidity position in the medium term. The company is expected to maintain its revenue market share at about 50%. To maintain the ratings, the company is required to show a strong commitment to balance shareholder returns with creditor interests.
TRIS Rating reported that ADVANC’s business profile is very strong. The company holds approximately half of the industry’s market shares in terms of subscribers and revenues. By year end 2010, ADVANC had 31.2 million subscribers and generated a total revenue of Bt111,280 million. The company’s business profile is supported by a good track record of its management team in handling challenges from dynamic competitive landscape and technological advances. A combination of experienced and capable management team and adequate funding sources has also enabled the company to provide high quality services through an extensive network infrastructure, particularly in rural areas, and control its costs effectively. Significant subscriber base underscores strong brand equity and effective business strategies.
ADVANC’s strong financial profile is underpinned by stable profit margins and strong cash flow generation. Operating margins for the past three years ranged between 42%-47%. The strong margins are enabled by economies of scale and effective cost control initiatives. The company’s aggressive dividend payout in 2010 materially reduced its equity base, which has already declined consecutively since 2006, and significantly weakened its capital structure. At the end of 2010, ADVANC’s debt to capitalization ratio stood at 46.9%. The ratio had risen steadily from 24.2% in 2005. ADVANC’s dividend policy is to pay dividends at least 100% of its net profits. The company; however, stated it is willing to balance the payout ratio with cash preservations to support future investments.
TRIS Rating said about ADVANC’s current financial profile that it fully provides the company with a sufficient financial flexibility should the third-generation (3G) license auction happen in the next few years. The company’s robust cash flows still place it in a better position than industry peers to finance the 3G network rollout. Nonetheless, TRIS Rating cautions that the ratings could be under pressure if the funding requirements for 3G rollout or other business purposes lead to a higher-than-expected leverage financing and weakened the company’s balance sheet further.
TRIS Rating expects ADVANC to pursue a more cautious financial policy should the 3G license auction continue to delay and uncertainties in regulatory environments continue to persist. Under such a scenario, ADVANC should demonstrate a stronger level of financial cushion over times to weather
against unexpected shifts in cost structure or regulatory evolutions in order for the company to maintain the current rating category. The minimum requirement suggests a ratio of funds from operations (FFO) to total debt above 100% and a ratio of debt to capitalization below 50%. -- End
Company Rating: Affirmed at AA Issue Ratings: AIS119A: Bt4,000 million senior debentures due 2011 Affirmed at AA AIS127A: Bt5,000 million senior debentures due 2012 Affirmed at AA AIS134A: Bt4,000 million senior debentures due 2013 Affirmed at AA AIS139A: Bt4,000 million senior debentures due 2013 Affirmed at AA AIS141A: Bt2,500 million senior debentures due 2014 Affirmed at AA Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: rapee@tris.co.th, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? 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