TRIS Rating Co., Ltd. has affirmed the ratings of Advanced Info Service PLC (ADVANC) and its debentures at "AA". The ratings are based on ADVANC's solid business position as Thailand's leading mobile phone operator with a very large customer base, strong operating performance and high cash generation ability. The ratings also take into consideration ADVANC's capable and professional management team, its well-recognized brand and ability to control expenses. However, these strengths are partially restrained by continuing intense competition in the mobile phone industry, especially after a new operator entered the market and the inherent technological risk facing all operators. The "stable" rating outlook reflects that ADVANC will be able to deliver operating performance in line with expectations as a result of its market leader position and the experience of its management team. A high level of cash flow will provide ADVANC more flexibility than its peers to cope with technological and regulatory risks.
TRIS Rating reported that although demand for mobile phones in Thailand will not grow at rates as impressive as experienced during 2001 and 2002, it still has room to grow during the next two to three years. Reductions in handset prices and tariffs and various attractive features launched by the mobile phone operators continue to drive growth. Handset prices and tariffs have dropped to levels more affordable for larger groups of consumers. As of July 2004, the penetration rate of mobile phones in Thailand was around 40%. ADVANC is the leading mobile phone network provider in Thailand with approximately 57% market share. The company continues to benefit from its strong brand name, the highest network quality among all operators in Thailand and efficient marketing efforts. ADVANC ended 2003 with 13 million subscribers, an increase of 26% over year-end 2002, while the number of mobile phone subscribers of the whole industry grew at approximately 25% during the same period. By the end of July 2004, its subscriber base had expanded to 14 million subscribers, 17% growth from the same period last year.
TRIS Rating said that with its dominant market position, strong financial position, ample financial flexibility to fund new investments, and a very strong brand name, ADVANC should be able to maintain its leading position in the mobile phone industry. ADVANC's management team has a good track record of coping with the twin challenges of a changing competitive environment and technology development. It has successfully implemented various strategies to create long-term competitive advantages for the company. Because the penetration rate for mobile phones in Thailand will approach the saturation rate within the next two to three years, rather than continuing to aggressively acquire new subscribers, management is now focusing on better customer relationship management to retain valued customers. ADVANC has budgeted approximately Bt3,000 million to spend on a customer care project to ensure that its customers are satisfied with its services and products. To increase capacity and improve network coverage, ADVANC spent Bt29,546 million in 2001, Bt38,528 million in 2002, and Bt17,504 million in 2003 for its capital expenditures.
ADVANC has consistently delivered strong operating results during the last five years. Cash flow generation has improved substantially due mainly to dramatic growth in mobile phone demand. Funds from operations (FFO) increased from Bt27,994 million in 2002 and Bt38,349 million in 2003. Total debt rose from Bt13,437 million in 2000 to Bt46,641 million in 2001 and to Bt51,764 million in 2002. However, total debt dropped to Bt42,645 million in 2003, and to Bt38,053 million at the end of June 2004. The operating profit margin before depreciation and amortization held firm at around 38% during 1998 through the first half of 2002. At the end of 2002, operating margin stayed at 42%, improving to 49% in 2003 and 53% as of June 2004 due to huge economies of scale and a decreased reliance on revenue from handset sales which now has low margin, TRIS Rating said. - End
Advanced Info Service PLC (ADVANC) Company Rating: Affirmed at AA Issue Ratings: AIS04NA: Bt5,000 million senior debentures due 2004 Affirmed at AA AIS063A: Bt12,000 million senior debentures due 2006 Affirmed at AA AIS06NA: Bt10,000 million senior debentures due 2006 Affirmed at AA AIS073A: Bt3,000 million senior debentures due 2007 Affirmed at AA AIS07OA: Bt5,000 million senior debentures due 2007 Affirmed at AA AIS093A: Bt2,500 million senior debentures due 2009 Affirmed at AA AIS093B: Bt4,500 million senior debentures due 2009 Affirmed at AA Rating Outlook: Stable