Thai Rating and Information Services Co., Ltd. (TRIS) announced that it has affirmed a "AA-" company rating to Advanced Info Service PLC (ADVANC) and has also assigned a "AA-" rating to ADVANC's up to Bt15,000 million senior debentures. The ratings reflect the company's leading position in Thailand's rapid growth mobile communications industry, its capable and professional management team, and its strong financial profile, which although weakening is expected to stabilize after ADVANC completes a massive capacity build up. However, these strengths are partially offset by substantial capital expenditures required during the next two years, regulatory uncertainty and potential intensification of competition from new players. The ratings also take into consideration ADVANC's acquisition of the far weaker mobile operator, Digital Phone Co., Ltd. (DPC) in September 2001. This had a negative impact on ADVANC's financial position, but improved its business risk.
TRIS reported that ADVANC is one of the two dominant players of Thailand's mobile industry while the other is Total Access Communication PLC (TAC). Demand for mobile phones in Thailand is expected to continue to grow at an impressive rate, driven mainly by declining consumer costs of entry and usage and various attractive features launched by the mobile phone operators. After cuts of 30% to 40% in 2000, handset prices have fallen further in 2001. A relatively low penetration rate of 8.6% at the end of June 2001 is another supporting factor for growth. These opportunities encourage new players to share the market, which will intensify the competitive environment. However, revenue streams may not be affected because of higher traffic volumes from lower prices and new service offerings. To remain competitive, the incumbent operators must enhance their networks to improve service quality, be able to offer new services and increase revenues from traffic growth. ADVANC and DPC will need combined capital expenditures of as much as Bt64,000 million during 2001-2003 to ensure that capacity will be sufficient to support strong subscriber growth. These investments are more than the accumulated amount it spent from its establishment until 2000. Around half of this huge investment will be debt financed as internal cash generation is not sufficient. Although acquisition of DPC is a good strategic move for the long term because it allows ADVANC to expand its networks more rapidly than its competitors, to add the 12.5 MHz radio frequency, and to benefit from cost savings by pooling equipment purchasing and other activities, ADVANC's consolidated financial status will weaken during the next two to three years after including the far weaker DPC within its group.
TRIS said that while the number of mobile phone subscribers grew 45% in 2000 and an impressive 46% in the first six months of 2001, ADVANC's subscriber growth has been stronger than the industry average, which has enabled ADVANC to gain market share. Its subscriber base increased from 45% of total mobile subscribers at the end of 1998 to 57% at the end of June 2001 with 3 million subscribers. Meanwhile, TAC's market share declined from 43% in 1998 to 37% at the end of June 2001. ADVANC's capable management team and sufficient financial resources have enabled the company to build a strong brand name, resulting in increase of its market share over the last three years. Management has successfully implemented various strategies to create long-term competitive advantages for the company.
TRIS reported that ADVANC's cash flow generation in 2000 and during the first half of 2001 improved substantially due to dramatic growth in mobile phone demand. Funds from operation (FFO) for 2000 and first-half 2001 were Bt13,249 million and Bt8,481 million respectively compared with Bt8,356 million in 1999. Total debt rose from Bt6,875 million at the end of 1999 to Bt13,437 million in 2000 and will reach Bt40,000 million to Bt50,000 million during 2001-2002 to finance an aggressive expansion plan and because of the consolidation of DPC. FFO to total debt declined from a high of more than 120% in 1999 to around 99% in 2000 and is expected to decline to 30% to 40% in the next two years. Further deterioration of this measure will be a concern for ADVANC's credit ratings. Operating profit margin before depreciation and amortization rose from 37.7% for 1999 to 38.2% in 2000 and increased slightly to 38.4% for first-half 2001, on benefits from economies of scale.
TRIS said that the government has a clear direction to liberalize the telecommunication industry, which will create greater competition. However, it is too early to evaluate the full impact on existing operators since the timing and structure of the liberalization is still uncertain.
Advanced Info Service PLC (ADVANC) Company Rating Affirmed at AA- Issue Rating AIS#10: Bt8,000 million senior debentures due 2003 Affirmed at AA- AIS063A: Bt12,000 million senior debentures due 2006 Affirmed at AA- Bt5,000 million senior debentures due 2004 AA- Up to Bt10,000 million senior debentures due 2006 AA-
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TRIS reported that ADVANC is one of the two dominant players of Thailand's mobile industry while the other is Total Access Communication PLC (TAC). Demand for mobile phones in Thailand is expected to continue to grow at an impressive rate, driven mainly by declining consumer costs of entry and usage and various attractive features launched by the mobile phone operators. After cuts of 30% to 40% in 2000, handset prices have fallen further in 2001. A relatively low penetration rate of 8.6% at the end of June 2001 is another supporting factor for growth. These opportunities encourage new players to share the market, which will intensify the competitive environment. However, revenue streams may not be affected because of higher traffic volumes from lower prices and new service offerings. To remain competitive, the incumbent operators must enhance their networks to improve service quality, be able to offer new services and increase revenues from traffic growth. ADVANC and DPC will need combined capital expenditures of as much as Bt64,000 million during 2001-2003 to ensure that capacity will be sufficient to support strong subscriber growth. These investments are more than the accumulated amount it spent from its establishment until 2000. Around half of this huge investment will be debt financed as internal cash generation is not sufficient. Although acquisition of DPC is a good strategic move for the long term because it allows ADVANC to expand its networks more rapidly than its competitors, to add the 12.5 MHz radio frequency, and to benefit from cost savings by pooling equipment purchasing and other activities, ADVANC's consolidated financial status will weaken during the next two to three years after including the far weaker DPC within its group.
TRIS said that while the number of mobile phone subscribers grew 45% in 2000 and an impressive 46% in the first six months of 2001, ADVANC's subscriber growth has been stronger than the industry average, which has enabled ADVANC to gain market share. Its subscriber base increased from 45% of total mobile subscribers at the end of 1998 to 57% at the end of June 2001 with 3 million subscribers. Meanwhile, TAC's market share declined from 43% in 1998 to 37% at the end of June 2001. ADVANC's capable management team and sufficient financial resources have enabled the company to build a strong brand name, resulting in increase of its market share over the last three years. Management has successfully implemented various strategies to create long-term competitive advantages for the company.
TRIS reported that ADVANC's cash flow generation in 2000 and during the first half of 2001 improved substantially due to dramatic growth in mobile phone demand. Funds from operation (FFO) for 2000 and first-half 2001 were Bt13,249 million and Bt8,481 million respectively compared with Bt8,356 million in 1999. Total debt rose from Bt6,875 million at the end of 1999 to Bt13,437 million in 2000 and will reach Bt40,000 million to Bt50,000 million during 2001-2002 to finance an aggressive expansion plan and because of the consolidation of DPC. FFO to total debt declined from a high of more than 120% in 1999 to around 99% in 2000 and is expected to decline to 30% to 40% in the next two years. Further deterioration of this measure will be a concern for ADVANC's credit ratings. Operating profit margin before depreciation and amortization rose from 37.7% for 1999 to 38.2% in 2000 and increased slightly to 38.4% for first-half 2001, on benefits from economies of scale.
TRIS said that the government has a clear direction to liberalize the telecommunication industry, which will create greater competition. However, it is too early to evaluate the full impact on existing operators since the timing and structure of the liberalization is still uncertain.
Advanced Info Service PLC (ADVANC) Company Rating Affirmed at AA- Issue Rating AIS#10: Bt8,000 million senior debentures due 2003 Affirmed at AA- AIS063A: Bt12,000 million senior debentures due 2006 Affirmed at AA- Bt5,000 million senior debentures due 2004 AA- Up to Bt10,000 million senior debentures due 2006 AA-
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