TRIS Rating Co., Ltd. has affirmed the company and senior debenture ratings 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, and the increasing amount of broadband bandwidth usage. The ratings are partially constrained by intense competition in overseas markets, weak results from the company’s telecommunications businesses in Indochina, and the complicated regulatory regime inherent in the satellite industry. The “stable” outlook reflects the expectation that THCOM will continue to maintain its strong market positions and sustain its ability to generate cash flows. The implementation of the future business growth strategy is not expected to deteriorate its financial strength.
TRIS Rating reported that THCOM, formerly named Shin Satellite PLC (SATTEL), operates two geosynchronous satellites. One is a conventional satellite named Thaicom5 and the other is a broadband satellite named Thaicom4, also known as IPSTAR. THCOM invested through Shenington Investments Pte Ltd. (Shenington) in Mfone Co., Ltd. (Mfone) and Lao Telecommunications Co., Ltd. (LTC), the telecom businesses in Cambodia and Laos, respectively. In addition, the company also has investments through its subsidiaries and associates in Internet and media business.
TRIS Rating said, THCOM’s revenue in 2011 grew by 8.3% year-on-year (y-o-y) to Bt7,254 million, and jumped by 21.5% y-o-y for the first three months of 2012. Services provided through the conventional satellite contributed about 35% of total revenue while sales and services revenue from IPSTAR satellite contributed 45%. The remaining portion came from the telecom, Internet, and media segments. Customers of THCOM’s conventional satellite services are primarily located in Thailand and neighboring countries. IPSTAR customers are mainly based in Thailand, Australia, Japan, Malaysia, and India.
THCOM’s strong business profile is underpinned by the company’s dominant position as the sole satellite service provider in Thailand. Growing demand in broadcast TV channels reflects a positive factor to THCOM’s credit quality. The number of broadcast TV channels has grown strongly from 358 channels in 2010 to 427 channels in 2011, and to 452 channels at the end of March 2012. Its competitiveness is secured by high barriers to entry, involving a limited number of orbital slots, high capital investment, complicated regulatory processes, and technological requirements. In addition, THCOM is considered one of the key satellite service providers in Asia Pacific and has enjoyed serving the growing demand in the region. The satellite business generates recurring cash flows based on medium- to long-term contracts.
As Thaicom1 and Thaicom2 satellites were deorbited during 2009-2010, the company has approved to invest in two new conventional satellites, Thaicom6 and Thaicom7. Thaicom6 is expected to be launched in mid 2013 and located at 78.5 degrees East, serving Southeast Asia and Africa. As of March of 2012, THCOM has already pre-sold about 15% of the Thaicom6’s total capacity. Thaicom7 will be positioned at 120 degrees East in 2014. Its coverage area is Southeast Asia, South Asia, and Australia. These two satellites will add 40 transponders to THCOM’s portfolio. The investment for Thaicom6 is approximately US$160.2 million and the investment for Thaicom7 is about US$171 million with annual installments over the lifetime of the satellite. The financing for Thaicom6 is provided mainly through a bank loan, while the financing for Thaicom7 is in form of the cooperation agreement with Asia Satellite Telecommunications Co., Ltd. (AsiaSat) to cooperate in preserving the 120 degrees East and to develop and build a satellite to provide satellite services.
THCOM has concentrated on selling the bulk of IPSTAR’s bandwidth to telecom companies. In 2011, more IPSTAR’s bandwidths were contracted and deployed, mainly in Australia, Malaysia, and Myanmar. The IPSTAR bandwidth utilization rate soared to 24.6% in 2011, compared with 15.6% in 2010. IPSTAR’s performance in 2012 is expected to improve further as THCOM has signed contracts with new clients in Japan and customers in Thailand. However, IPSTAR’s prospects are constrained by the uncertainty surrounding the extent and timing of revenue from the Chinese market, as THCOM has allocated a significant portion of IPSTAR’s capacity to China. IPSTAR is minimally used for a CDMA mobile backhaul solution in Xinjiang province. The delayed success of IPSTAR in the key overseas markets remains a key drag on the ratings.
During 2011 and the first quarter of 2012, the combined revenues of the telecom businesses in Laos and Cambodia contributed around 16% of THCOM's total revenue, compared with over 20% in the past. The decline was due to intensified competition, which has significantly impaired the profitability of these two businesses during the last three years. TRIS Rating expects THCOM to reach solution for the mobile business in the near future.
The financial strength of THCOM is considered moderate with acceptable liquidity. Operating income as a percentage of sales improved from 29.3% in 2010 to 39% in 2011, and 41% in the first quarter of 2012. The rise in margin was owed to the gradual improvement in IPSTAR’s performance and ongoing sustained conventional satellite service revenue while the telecom segment was declining. A more improvement in margins is expected once IPSTAR business in key overseas markets materializes. Funds from operations (FFOs) rose from Bt1,479 million in 2010 to Bt2,298 million in 2011 and stood at Bt629 million for the first three months of 2012. THCOM’s financial leverage increased, as measured by a rise in the total debt to capitalization ratio. The ratio climbed from 36.6% in 2010 to 42% at the end of March 2012, mainly to fund the investment in the Thaicom6. In the medium term, TRIS Rating views that THCOM’s leverage level will likely not to fall as THCOM signed a cooperation agreement with AsiaSat to build Thaicom7 satellite which TRIS Rating’s practice treats its net present value of the financing of Thaicom7 as a liability once Thaicom7 operates. In addition, according to THCOM’s future growth plan, the company is considering to invest in two more satellites in the future. The financial profile is foreseen to strengthen after the contribution of new satellites and IPSTAR are well materialized. Meanwhile, TRIS Rating expects THCOM to pursue a conservative financial policy and demonstrate ample liquidity. — 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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