TRIS Rating has resolved the CreditAlert with “positive” implication on True Corporation PLC (TRUE) and has upgraded the company rating of TRUE to “BBB+” from “BBB”. TRIS Rating has also upgraded the ratings of TRUE’s existing senior unsecured debentures to “BBB+” from “BBB-”. At the same time, TRIS Rating has revised TRUE’s outlook to “stable”. The upgrades reflect TRUE’s stronger financial profile and business flexibility after the completion of the recapitalization. TRUE’s issue ratings are upgraded by two notches to equalize the company rating to reflect improved recovery prospects of the unsecured bonds after a significant reduction in secured loans.
TRUE’s credit ratings continue to reflect the company’s leading position as an integrated telecom operator with established market positions in fixed-line broadband Internet and mobile services; and expected continuing supports from major shareholders. These strengths are partially offset by intense competition in core businesses and high investment requirements in the online and mobile segments.
The “stable” outlook reflects an expectation that TRUE will continue to sustain its strong business positions in key segments. TRUE’s ratings could be upgraded if its core operations continue to improve strongly. However, the ratings could be downgraded if performance or capital expenditures exert pressure on the debt to capitalization ratio to rise above 66% for extended periods.
In September 2014, TRUE completed its recapitalization by raising Bt65 billion in new equities from existing investors and new strategic partner, China Mobile International Holdings Ltd. (China Mobile), the world largest mobile operator by subscribers. TRUE used the proceeds to pay down about Bt55 billion of its secured loans. After the recapitalization, CP Group’s holding stake in TRUE declined to 51% from 60%, and China Mobile held an 18% stake in TRUE. TRUE’s debt to capitalization is expected to improve from 95% at the end of June 2014 to about 50%-55% in September 2014. The FFO to total debts ratio is expected to improve to about 20% from 8%-11% over the past three years. The reduction in financial costs and the removal of bank covenant concerns are expected to increase TRUE’s competitiveness and flexibility. However, strategic collaboration with China Mobile will likely take time to materialize.
TRUE was incorporated in 1990. The company is engaged in three business segments: “TrueOnline”, provides fixed-line in Bangkok Metropolitan Area (BMA) and broadband Internet nationwide; “True Mobile”, provides mobile services; and “TrueVisions”, offers pay TV services. In 2013, TRUE’s revenue stood at Bt96.2 billion. Revenue contributions from the three businesses were 24%, 66%, and 10%, and EBITDA contributions (earnings before interest, taxes, depreciation, and amortization) were 62%, 29%, and 9%, respectively.
TRUE’s business profile is strong. TrueOnline held about 40% of revenue shares in broadband Internet nationwide and about 68% in BMA. TrueVisions is the largest pay-TV operator and True Mobile is the third rank mobile phone operator in Thailand. TrueVisions had about 818,000 pay-TV subscribers and 1.5 million free-TV subscribers as of June 2014. True Mobile holds about 16% of service revenue share in the mobile industry. TRUE’s credit ratings take into account expected strong supports from the CP Group, one of Thailand’s leading conglomerates.
TRUE’s financial profile during the past 12 months was in line with TRIS Rating’s expectation. The company’s revenues grew by 5.3% in the first half of 2014 and 7.6% in 2013 compared with the same period a year ago. Broadband Internet and mobile services were the growth drivers. Operating margin (operating income before depreciation and amortization as a percentage of revenue) in the first half of 2014 improved to 25.7%, compared with 17% in 2013 as the mobile segment enjoyed lower regulatory costs from the 850 MHz network. Performance of the pay-TV segment continued to be under competitive pressures from the cable, satellite, and digital-TV operators.
During 2014-2017, TRIS Rating’s base-case expects TRUE’s revenues in a range of Bt99-Bt109 billion per annum, or an annual growth rate of 2%-4%. The growth drivers are broadband Internet and mobile’s non-voice services. Operating margins are expected to remain under competitive pressures, but could improve after the 2G network is shutdown in late 2015. TRUE is expected to generate funds from operations (FFO) in a range of Bt13-Bt20 billion per annum. The capital expenditures, including 3G 2100 MHz license costs, are expected at Bt26.5 billion in 2014, Bt25 billion in 2015, and to be lowered than Bt20 billion per annum for the following two years, which should potentially drive the debt to capitalization ratio to about 60%. The downside risk on cash flow generations is moderate, reflecting TRUE’s strong business positions, partially offset by rapidly changing industry dynamics. However, higher-than-expected capital expenditures are major concern, particularly in the online segment as fixed-line network replacement could be required before the concession expires in 2017.
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