TRIS Rating affirms the company rating on True Move H Universal Communication Co., Ltd. (TUC) and the ratings on TUC’s senior unsecured debentures at “BBB+”. At the same time, TRIS Rating assigns a rating on TUC’s proposed issue of up to Bt25 billion in senior unsecured debentures and the additional greenshoe portion of up to Bt5 billion at “BBB+”. The proceeds from the new debentures will be used to pay its 900MHz license fee and fund its working capital.
The ratings reflect TUC’s status as a core business unit of TRUE Corporation PLC (TRUE; rated “BBB+/Stable” by TRIS Rating). The ratings also take into consideration TUC’s sound competitive position in the mobile services industry. However, the ratings are constrained by its high leverage and competitive pressure which hinder the company’s ability to monetize its hefty investment in spectrum portfolio, network capacity, and coverage.
For the first half of 2019, TUC’s operating performance was in line with TRIS Rating’s expectation. Service revenue (excluding interconnection charges or IC) was Bt38.6 billion, up by 6.9% year-on-year (y-o-y) compared with the industry average growth of 1%. Market share by service revenue (excluding IC) was 29%, compared with AIS at 48% and DTAC at 23%.
TUC’s financial profile was in line with TRIS Rating’s expectation. For the first six months of 2019, TUC reported Bt53.6 billion in revenue, Bt12.8 billion in earnings before interest, tax, depreciation, and amortization (EBITDA), and Bt9.1 billion in funds from operations (FFO). Leverage remains high. At the end of June 2019, the adjusted ratio of debt to EBITDA was 8.9 times (annualized, from the trailing 12 months) and the adjusted ratio of FFO to debt was 7.8% (annualized, from the trailing 12 months).
The capital structure, measured by the adjusted total debt to capitalization ratio, weakened to 69.9% at the end of June 2019, from 65.7% at the end of 2018, due to the adoption of the new accounting standard (IFRS 15) which requires the company to write off the accumulated subscriber acquisition cost of approximately Bt10 billion through its retained earnings.
RATING OUTLOOK
The “stable” outlook is based on our expectation that TUC will maintain its competitive market position and effectively monetize its investment without significantly hurting its financial profile. TUC's status as a core subsidiary of TRUE is expected to remain unchanged. Any change in TRUE's credit ratings will impact TUC's ratings accordingly.
RATING SENSITIVITIES
The prospect of a rating upside is constrained by TUC's current financial profile. TUC's ratings could be downgraded if the company’s operating performance is notably weaker than TRIS Rating's expectation.
Several legal uncertainties, such as revenue sharing or excise tax issues, will take time to resolve. The ratings could be under downward pressure if the legal outcomes significantly affect the financial profile of TRUE, its parent company.
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