TRIS Rating Co., Ltd. has affirmed the company rating of Total Access Communication PLC (DTAC) at “AA-” with “stable” outlook. The rating reflects a healthy balance sheet and solid cash flow generation ability which would further support DTAC’s competitive edge. The rating also takes into consideration the company’s extensive network coverage and the ability of its proficient management team to continue to deliver solid operating performance and maintain a strong market position. These strengths are partially constrained by the uncertainty surrounding telecommunication regulations and the competitive environment. The “stable” outlook is based on the expectation that DTAC will continue to maintain its strong competitive position and a solid operating performance with ample liquidity. DTAC is expected to maintain its conservative financial policy, balancing its dividend payouts while keeping its balance sheet strong.
TRIS Rating reported that DTAC holds a strong market position as the second-largest cellular phone service provider in Thailand with around 30% share of total subscribers. At the end of September 2011, DTAC had a total of 22.9 million subscribers. A strong market position ensures the sustainability of revenues and cash flow, resulting in a satisfactory financial position. DTAC’s business strength is further supported by established brand equity and good quality services through an extensive network which enhances its competitive position. The company also benefits from the managerial assistance of Telenor ASA (Telenor), a leading Norwegian telecom-munication company.For the first nine months of 2011, DTAC’s service revenues, excluding the Interconnection Charge (IC), rose by 8% from the same period a year earlier, driven by prepaid subscriber growth and a very strong growth rate for data services. Robust prospects of data usages supported by the boom in smart phones and the social networking applications could partly offset the saturated voice service revenue. Operating margins (including IC) as a percentage of sales for the first nine months of 2011 increased to 35.8%, compared with 34.8% from the same period of the prior year. The rise in margin was driven by the ongoing control of network maintenance costs and administrative costs.
TRIS Rating said that DTAC’s financial strength is underpinned by a very healthy balance sheet, strong cash flow generation ability, and ample liquidity with very low leverage level. DTAC’s cash flow protection remained very strong. Funds from operations (FFO) increased from Bt16,722 million in 2009 to Bt21,406 million in 2010. For the first nine months of 2011, the company generated FFO of Bt16,708 million, up by 9% from the same period of the previous year.
DTAC’s leverage level has declined over years, driven by its strong ability to generate cash flow and conservative financial policy. At the end of September 2011, total debt level was very low at Bt5,250 million, which pushed the debt to capitalization ratio down to 6.9%. The ratio fell from 23.3% in 2009 and 11.5% in 2010. The FFO to total debt ratio for the first nine months of 2011 was considered abnormally high, standing at 318.3% (non-annualized). The ratio was 88.1% and 240.2% in 2009 and 2010, respectively. Earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio sharply improved from 14 times in 2009 to 26 times in 2010, and 60.5 times for the first nine months of 2011. DTAC's current financial strength is powered by the stronger cash flow generation while the investment in its 2G network was lessened, in order to reserve cash for the coming investment in 3G network. DTAC’s strong cash flow provides sufficient financial flexibility for its working capital needs and capital expenditure requirements for funding network rollout and scheduled debt repayments. Given its healthy balance sheet, this has allowed DTAC to raise dividends and/or consider to give extra dividend to shareholders. TRIS Rating expects DTAC to pursue a conservative financial policy and demonstrate a strong financial cushion.
Although facing a slowdown in subscriber growth due to the Thai flood disaster since September 2011, DTAC’s operation has little affects from the floods. The wireless industry service revenue in 2011 is expected to register single digit growth on the back of a strong growth in value-added services, driven by the popularity of smart phones, social networking applications, and mobile Internet. The mobile phone service providers have focused on the non-voice segment competition. However, uncertainties surrounding several regulatory developments remain major negative factors for all mobile phone service providers, said TRIS Rating. -- End
Company Rating: Affirmed at AA- Rating Outlook: Stable
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