TRIS Rating has affirmed the company rating and the ratings of the senior unsecured debentures of True Corporation PLC (TRUE) at “BBB+” and has affirmed the rating of TRUE’s senior partially guaranteed debentures at “A-” with “stable” outlook. The ratings reflect the company’s leading position as an integrated telecom operator with an established market presence in fixed-line broadband Internet and mobile services. The rating affirmations also incorporate the expectation of ongoing support from its major shareholders. These strengths are partially offset by intense competition in TRUE's core businesses and a weakened financial profile from high costs of the licenses for the 1800-megahertz (MHz) and 900-MHz mobile spectrums it recently acquired and the large investments for rolling out 4-generation (4G) network and a broadband network.
The “stable” outlook reflects the expectation that TRUE will sustain its strong market positions in its key segments. TRUE’s rating upside case could emerge if TRUE succeeds in gaining market share in the mobile segment and strengthening its profitability and cash flow generation without weakening its financial position. However, the ratings could be downgraded if TRUE's operating performance deteriorates and the ratio of debt to capitalization stays over 65% on a sustained basis.
TRUE was incorporated in 1990. The company has three business segments: TrueOnline, providing broadband Internet nationwide and fixed-line phone in the Bangkok Metropolitan Area (BMA); True Mobile, providing mobile services; and TrueVisions, offering pay television (TV) services and two digital TV channels. In 2015, TRUE’s revenue stood at Bt118.8 billion. The revenue contributions from the three lines of business were 23%, 69%, and 8%, and EBITDA contributions (earnings before interest, taxes, depreciation, and amortization) were 51%, 45%, and 4%, respectively.
The ratings reflect TRUE's strong business profile, which is underpinned by its position as a leading integrated telecom service provider. TrueOnline held a 42% of revenue shares in the broadband Internet nationwide. TrueVisions is the leading pay-TV operator, offering a wide range of international and local contents. As of March 2016, TrueVisions had about 3.2 million subscribers. True Mobile is the third-ranked mobile phone operator in Thailand, holding a 22% share of service revenue in the mobile industry. TRUE’s credit ratings are partly strengthened by the support from two major shareholders. CP Group, one of Thailand’s leading conglomerates, holds 57% of TRUE, followed by China Mobile International Holdings Ltd. (China Mobile) with an 18% ownership stake. China Mobile is the world's largest mobile operator by number of subscribers.
TRUE recently acquired licenses for the 1800- MHz and 900-MHz spectrums, which will enhance its competitive position in the mobile segment. In common with its competitors, TRUE has shifted away from the voice segment to place a greater emphasis on data services. With the widest viable spectrums possessed, TRUE is better positioned to use its broad spectrums to serve the fast-growing data service segment. Looking ahead, TRUE’s business profile hinges on its ability to acquire new subscribers and increase its operating cash flows.
Despite these positive factors, the ratings are partially offset by the intense competition in TRUE’s core businesses which stands to depress its profitability, particularly in the mobile segment. The ratings are also tempered by TRUE’s weaker financial profile. The soaring demand for mobile data has pushed operators to secure multi-year spectrum licenses, as evidenced by the highly competitive auctions for spectrum licenses which eventually resulted in much higher-than-expected license prices. TRUE has pledged to pay a total of Bt116 billion in exchange for the 1800-MHz and 900-MHz spectrum licenses. The high cost of spectrum licenses weighs on TRUE’s balance sheet, considerably lifting TRUE's debt (including operating lease obligations and accrued license fees) from Bt94.5billion in 2014 to Bt238.1 billion at the end of March 2016. In order to support the spectrum acquisitions and the related network investment, TRUE raised Bt60 billion in new equity capital in June 2016, which will be used to repay around Bt40 billion in debt. The remainder will be reserved for the 4G network rollout. Notwithstanding the recent capital injection, TRUE will remain saddled with debt as the company budgets its network expansions for Bt51.6 billion until 2021.
TRUE reported revenue of Bt118.8 billion in 2015 and Bt29 billion for the first quarter of 2016. Excluding revenue from delivering towers to the Digital Telecommunications Infrastructure Fund (DIF) of approximately Bt6 billion in 2015 and Bt1 billion in the first quarter of 2015, TRUE's revenue grew by 9% year-on-year (y-o-y) in 2015 and 6% y-o-y for the first three months of 2016. The growth was driven by the mobile segment and the broadband Internet segment. Under TRIS Rating’s base-case scenario, TRUE’s revenue is forecasted to be in a range of Bt125-Bt141 billion per annum during 2016-2018 or an annual growth rate of 5%-7%, propelled by the strong momentum of mobile data services and steady growth in broadband Internet. TRUE’s profitability is weaker than peers’ and will remain pressured because of the stiff competition in the mobile segment. Given nearly saturated and price-sensitive market, all mobile service providers will use more aggressive pricing strategies and marketing activities in an effort to attract subscribers. TRUE must strive to monetize its new spectrums while other operators need to defend their market positions. TRUE's operating margin (operating income before depreciation and amortization as a percentage of revenue) is expected to stay between 22%-27% during 2016-2018. Funds from operations (FFO) are expected to be in a range of Bt20-Bt33 billion during 2016-2018. The ratio of FFO to total debt is expected to range between 11%-20% during 2016-2018.
TRUE's capital structure weakened after the mobile spectrum acquisitions. However, it is expected to improve after the recent capital increase. The ratio of debt to capitalization is projected to improve from 75.5% at the end of March 2016 to a range of 55%-61% during 2016-2018. TRUE's liquidity profile will be tight during the next 12 months. Sources of funds are expected FFO of at least Bt20 billion, new capital of Bt60 billion, plus cash and cash equivalents of Bt13 billion as of March 2016. Uses of funds are debt repayments of Bt60 billion and planned capital expenditures of Bt39 billion. TRUE hence needs new external financing to support its liquidity.
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