TRIS Rating Co., Ltd. has affirmed the company rating and the ratings of senior debentures of Thaicom PLC (THCOM) at “BBB+” with “stable” outlook. The ratings reflect THCOM’s strong market position as the sole satellite communications service provider in Thailand, increase amount of broadband bandwidth usage in the international markets, and benefits from the group support. The ratings are partially constrained by intense competition in overseas markets, weakened telecommunication business operation in Indochina, uncertainty surrounding the prospect of broadband satellite in key markets, and high operating and regulatory risks inherent in the satellite industry. The shrinking operating performance in the telecommunication business hurt the overall operating performance. The “stable” outlook reflects the expectation that THCOM will maintain its strong market positions and sustain its cash flow generative ability. THCOM is expected to resolve the telecom business direction and not to jeopardize the overall profitability. 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 two geosynchronous satellites, one is conventional satellite (named Thaicom 5) and the other is a broadband satellite (named Thaicom 4, also known as IPSTAR). The company also provides satellite dish sales and internet services. THCOM invested through Shenington Investments Pte Ltd. (Shenington) in Mfone Co., Ltd. (Mfone), and Lao Telecommunications (LTC), the telecom businesses in Cambodia and Laos, respectively. For the first six months of 2011, total revenue was Bt3,432 million. The conventional satellite contributed about 34% of total revenue while the IPSTAR satellite increased its revenue contribution to 42%. The remaining came from the telecom and internet segment. Customers of THCOM’s conventional satellite services are primarily located in Thailand and neighboring countries. IPSTAR customers are mainly based in Thailand, Australia, Japan, and India.
TRIS Rating said, THCOM’s strong business profile is underpinned by the company’s dominant position as a satellite service provider in Thailand. Its competitiveness is secured by high barriers to entry and capital requirements. The business profile of the conventional satellite segment has been enhanced by an increase in the number of broadcasting TV channels, which has grown steadily from 283 channels in 2009 to 380 channels in June 2011. TRIS Rating expects THCOM to continue to enjoy a favourable market positions in the domestic market and in neighboring countries. The satellite business generates fairly stable cash flow because its business is built on medium- to long-term contracts. The company business profile is enhanced by strategic support from its major shareholder, Shin Corporation PLC (INTUCH). The ratings also take into consideration the growth in IPSTAR’s segment and the good prospects of Thaicom 6, a new conventional satellite. THCOM approved the investment in the Thaicom 6 satellite project in mid-2011. Thaicom 6 is expected to be launched in mid-2013 with an orbit slot position of 78.5 degree East. This satellite will add more transponder capacity and give more market coverage.
During 2006-2009, the utilization of IPSTAR has so far been derived from providing service in Australia and Thailand. During the past few years, THCOM has changed its marketing and sales efforts for IPSTAR by concentrating on selling bulk of IPSTAR bandwidth to telecom companies, instead of selling the bandwidth to many small retail customers. The IPSTAR bandwidth usages in 2010 doubled from the 2009 level, as IPSTAR service was commercialized in the Japanese and Indian markets. Customers in these two markets become key revenue contributors. In the second half of 2011, IPSTAR’s performance is expected to further improve as NBN Co., Ltd. (NBN Co) for Australia's National Broadband Network's Interim Satellite Service has signed a contract to buy IPSTAR bandwidth which commenced from October 2011. Moreover, in May 2011, a subsidiary of the Malaysian Satellite operator — Malaysia East Asia Satellite (MEASAT) signed an agreement to buy bulk bandwidth on IPSTAR to increase broadband capacity in Malaysia. However, IPSTAR’s prospects are constrained by the uncertainty surrounding the extent and timing of revenue recognition from the Chinese market as THCOM has allocated a significant portion of IPSTAR’s capacity to China. It faces a huge challenge to commercially penetrate the Chinese market. Success will depend on a large extent on key partner’s ability to productize and distribute the product as well as to offer to the local market.
TRIS Rating said about the 2011 national flood disaster affecting large areas in Thailand that it has also flooded Lad Lum Kaew, Patumthani district, where THCOM’s center is located. THCOM has created a 2-metre earth barrier around the antennas at the facility and the generator room, while an additional 1-metre sandbag barrier was built to reinforce the flood barrier. At the same time, back-up generators have been put in place. Under the Business Continuity Plan, THCOM has also identified additional locations from where the company can provide telemetry, tracking and command, and broadcasting services in a worst-case scenario. With these measures, THCOM currently is in full operation with little affects by the floods.
For the telecom segment, TRIS Rating said, THCOM has faced intense competition in telecom markets in Indochina during the past two years. Rivals have used price cutting to gain subscribers. Although the number of subscribers declined in the first half of 2011, LTC dominates the Lao telecom market with a 48.5% share of total subscribers. On the other hand, Mfone has lost subscribers and lost its competitive position. Mfone’s revenue slumped and it reported a loss in the first half of 2011. The weakening performance and slumping profit margins in the telecom segment hurt overall operating performance. TRIS Rating expects THCOM to resolve the business direction of Mfone and LTC in order to maintain the company’s growth momentum.
The financial profile of THCOM is characterized by a relatively stable cash flow, moderate leverage, and acceptable liquidity. Operating income as a percentage of sales ranged 34%-37% during 2006-2009. The operating income margin dropped to 29.5% in 2010 due to the weaker performance in telephone segment. However, the operating income margin for the first six months of 2011 improved to 35.8%. Very thanks to a sustained conventional satellite services and growing IPSTAR segment. The margins are expected to grow further in relation to the commercial increase in sales of IPSTAR. Funds from operations (FFO) ranged from Bt1,500-Bt2,000 million annually during the past three years, and stood at Bt954 million for the first six months of 2011. The FFO to total debt ratio was 18%-20% during 2009-2010 and was at 10.6% (non-annualized) at the end of June 2011. THCOM’s financial leverage slightly increased, as measured by a rise in the total debt to capitalization ratio from 36.6% in 2010 to 38.5% at the end of June 2011. In the medium term, the leverage level is unlikely to fall, considering THCOM’s investment in the Thaicom 6 conventional satellite project. The total project cost is approximately US$160 million. -- 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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