TRIS Rating Co., Ltd. has affirmed the ratings of Advanced Info Service PLC (ADVANC) and its debentures at “AA”. At the same time, TRIS Rating has assigned the rating of “AA” to ADVANC’s proposed issue of up to Bt10,000 million in senior debentures. The outlook remains “stable”. The proceeds from the proposed debentures are expected to be used for working capital requirements and reserve for future capital spending. The ratings are based on ADVANC’s dominant position in the Thai cellular market due to its extensive subscriber base and well-recognized brand name. The ratings also take into consideration the company’s capable and professional management team, its strong financial profile, and strong cash generating capability. However, these strengths are partially constrained by the continuation of intense competition among the three major mobile operators, inherent technological risk, and uncertainties related to telecom regulations.
The “stable” rating outlook is based on the expectation that ADVANC will sustain its strong operating performance and continue to pursue a conservative financial policy. ADVANC is expected to maintain its revenue market share at about 50%. In addition, any regulatory policy changes are not expected to adversely impact the company’s competitive advantages and financial performance.
TRIS Rating reported that ADVANC’s business profile is excellent. The company is the market leader in the Thai mobile industry, having about half of total market shares in terms of subscribers and revenues. As of September 2008, ADVANC had over 27 million subscribers. The company’s total revenue for the first nine months of 2008 was Bt84.5 billion. ADVANC’s business profile is supported by a good track record of its management team in handling challenges from dynamic competitive landscape and technological advances. A combination of experienced and capable management team and adequate funding sources has also enabled the company to provide high quality services through extensive investments in mobile network and internal control systems. Significant subscriber base underscores the company’s strong brand name and efficient marketing efforts.
ADVANC’s strong financial profile is underpinned by a conservative financial policy and strong cash flow generation. The company’s debt to capitalization ratio over the past three years ranged between 24%-30%. Economies of scale and effective cost control initiatives have allowed the company to sustain a relatively stable profitability margins for the last three years. Although the competitive environment will continue to exert pressure on ADVANC’s profitability and cash flows, TRIS Rating believes that ADVANC’s financial flexibility provides a sufficient cushion for future network investments. As a result of its dominant market position, strong financial profile, and ample financial flexibility to fund new investments, ADVANC is expected to sustain its competitive advantage in the long term and should be able to expand its leading role in the Thai telecom industry.
During the 1999-2004 period, the number of mobile phone subscribers in Thailand expanded rapidly at an average growth rate of 60% per annum. Subscriber growth afterward remained solid though at a slower pace, driven by heavy competition in SIM-card distribution, price cutting, and upcountry expansion. By year end 2008, mobile phone penetration rate in Thailand is expected to approach 100%. Uncertainties in several regulatory developments, in particular with regard to concession amendments, remain one of negative factors for all mobile operators.
Amid an increasing economic stress and political uncertainty, TRIS Rating expects a possible contraction in ADVANC’s profitability in the coming quarters. Profitability margin will be under pressure though the extent of which is not expected to be substantial in view of the industry’s relatively resilient nature to the economy. -- End
Company Rating: Affirmed at AA Issue Ratings: AIS093A: Bt2,500 million senior debentures due 2009 Affirmed at AA AIS093B: Bt4,500 million senior debentures due 2009 Affirmed at AA AIS099A: Bt3,427.1 million senior debentures due 2009 Affirmed at AA AIS119A: Bt4,000 million senior debentures due 2011 Affirmed at AA AIS134A: Bt4,000 million senior debentures due 2013 Affirmed at AA AIS139A: Bt4,000 million senior debentures due 2013 Affirmed at AA Up to Bt10,000 million senior debentures due within 2014 AA Rating Outlook: Stable
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