TRIS Rating has assigned the company rating of dtac TriNet Co., Ltd. (DTN) and the rating of DTN’s proposed issue of up to Bt15,000 million in senior unsecured debentures at “AA+” with “stable” outlook. The proceeds from the debentures will be used for investment and reserved for the expected license auctions. The ratings reflect DTN’s strategic importance as a core business of Total Access Communication PLC (DTAC; “AA+/Stable”). DTN is a wholly-owned subsidiary of DTAC and is operating a wireless communications network under the 2100-megahertz (MHz) license regime. The ratings take into consideration the DTAC Group’s strong competitive position, a well-established brand, wide network coverage, and growth prospect of data demand. However, these strengths are partially offset by aggressive competition and the large investment required rolling out network nationwide.
The “stable” outlook is based on the expectation that DTN will continue to migrate traffic to its network under the license regime, which yields larger regulatory cost saving. DTN's status as a DTAC's core business is expected to remain unchanged. Any change in DTAC’s credit rating will affect DTN accordingly.
DTN was founded in 2006 by DTAC, the second-largest wireless telecom company in Thailand. Initially, DTN has provided international direct dialing (IDD) services. In October 2012, DTN participated in the auction and was awarded a 15-year license for the 2100-MHz spectrum in December 2012. DTN develops its network, utilizing 3G (third generation) and 4G LTE (long term evolution) technologies and launched the services in July 2013 and May 2014, respectively.
In 2014, DTN’s total service revenues was Bt56,300 million. DTN contributed about 63% of DTAC's total revenues and nearly 30% of DTAC's EBITDA (earnings before interest, taxes, depreciation, and amortization). DTAC has a full control over DTN's operations through the appointment of top management and board of director. DTAC and DTN share the resources and network facilities in order to provide services to their subscribers. As DTAC’s 2G concession will expire in 2018, all subscribers will finally be migrated to DTN’s network. At the end of March 2015, DTN had a total of 23.5 million subscribers or about 83% of DTAC's total subscribers. DTN's subscribers are accounted 28% share of all 3G and 4G subscribers. Going forward, DTN will be the Group’s key vehicle to operate and develop the wireless communication network.
DTN's service revenues grew from Bt11,697 million in 2013 to Bt56,300 million in 2014. Its revenue will continue to jump following the attempt to migrate the subscribers from concession network and the growth prospect of data demand. During 2015-2017, TRIS Rating’s base-case expects DTN’s service revenues will grow at a double digit rate per annum. TRIS Rating estimates that DTN’s contribution to DTAC will increase to over 70% for revenue and 50% in terms of EBITDA.
DTN's operating margin (operating income before depreciation and amortization as a percentage of sales) was 14% for 2014, improving from 8% in 2013. The low margin was largely due to the handling of two networks and the comparatively high marketing expenses. DTN’s operating margin is expected to continue increasing over time, reflecting the regulatory cost savings arising from the larger 3G and 4G subscriber bases.
At the end of 2014, DTN reported total debt of Bt22,000 million which was fully financed by DTAC via shareholder loan, to support the network roll out. During 2015-2017, DTN has budgeted its capital expenditures of Bt45,000 million. In addition, the network investment could be more if the auctions of 1800-MHz and 900-MHz spectrums are in place. DTN’s cash flow generation remains weak, at the same time, it has the same dividend policy as DTAC: pay out at least 80% of net profits. In 2014, DTN generated funds from operations (FFO) of Bt7,208 million, the amount of which is forecasted to increase and reach Bt20,000 million per annum during the next three years. DTN’s financial profile will remain weaker than DTAC’s in the medium term. TRIS Rating expects DTAC will continue its full support to DTN and DTN's ability to raise fund will heavily hinge on the Group's credit quality. With DTAC’s support and the Group’s core business transition to DTN, the company is expected to strengthen over time.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2015, 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.