TRUE’s credit ratings continue to reflect the leading position as an integrated telecom company with established infrastructure in various technological platforms; strong market positions in fixed-line broadband Internet and pay-television (pay-TV) segments; and expected continuing financial supports from major shareholders. These strengths are offset by intense competition in core businesses, aggressive operating and investment costs to sustain competitiveness, and very high financial leverage.
TRUE was incorporated in 1990. The company is engaged in three business segments: “TrueOnline” provides fixed-line in Bangkok Metropolitan Area (BMA) and broadband internet services nationwide; “True Mobile” provides mobile services; and “TrueVisions” offers pay TV services. In 2012, TRUE’s revenue stood at Bt89.4 billion. Revenue contributions from the three businesses were 26%, 63%, and 11%, and EBITDA contributions (earnings before interest, taxes, depreciation, and amortization) were 60%, 29%, and 12%, respectively.
TRUE’s business profile is strong. TrueOnline’s strong market position in the broadband internet market reflects revenue market shares at about 39% nationwide and about 68% in BMA. The company is the largest pay-TV operator and the third rank mobile phone operator in Thailand. TrueVisions had about 747,000 pay-TV subscribers and 1.6 million free-TV subscribers as of September 2013. True Mobile holds about 16% of service revenue share in the mobile industry. TRUE’s credit ratings take into account expected strong supports from the CP Group, one of Thailand’s leading conglomerates. The CP Group held about 63% of TRUE’s outstanding shares as of August 2013.
TRUE’s financial profile during the first nine months of 2013 was below TRIS Rating’s base-case expectation. Although the company’s revenues grew by 9% in the first nine months of 2013 from the same period a year ago, increases in TRUE Mobile’s network investments, as well as operating costs in TRUE Mobile and TrueVisions continued to pressure operating margins (operating income before depreciation and amortization as a percentage of revenue) to 18.1% for the first nine months of 2013, compared with 18.7% in 2012 and 23.8% in 2011.
During 2014-2016, TRIS Rating’s base-case expects TRUE’s revenues in a range of Bt94-Bt111 billion per annum, or an annual growth rate of 6%. The growth drivers are fixed-line’s broadband internet and mobile’s non-voice services. TRUE is facing a revenue downside risk in late 2014 when the one-year transition period for TrueMove’s 2G services expires. TRUE Mobile may not be able to completely migrate all 2G subscribers and its revenue may contract up to 5%, under TRIS Rating’s base-case.
TRUE’s operating margins should remain under tight competitive pressures in 2014 and are expected to improve in 2015 to about 25% when the 2G network is shutdown and all subscribers are under the 3G network, which has competitive regulatory costs. TRUE is expected to generate funds from operations (FFO) in a range of Bt10-Bt12 billion per annum in 2014. The FFO is expected to improve to Bt18-Bt19 billion in 2015-2016 as a result of the margin improvements. TRIS Rating’s base-case assumes TRUE to cover most of its capital expenditures, including 3G license costs, with the FFO.
In December 2013, TRUE raised about Bt39 billion, net of reinvested proceeds, from the IFF. TRUE plans to use the proceeds for debt repayments and business expansion. TRUE will incur committed lease payments and transfer the rights to receive certain revenues to the IFF for about Bt5 billion per annum for the next 12-14 years. TRIS Rating considers the present value of both committed payments, estimated at Bt40 billion, as interest-bearing debts. As a result, the IFF is expected to have limited positive impact on TRUE’s debt to capitalization, but should help enhance the company’s future funding flexibility. At theend of September 2013, debt to capitalization was at 95.3%. TRIS Rating expects gains from the IFF transaction and improving operating performance to lower the debt to capitalization ratio to about 70%-75% by 2016. The ratings of TRUE’s senior debentures are one notch below the company rating due to a high level of secured debts compared with total assets.
True Corporation PLC (TRUE)
Company Rating: BBB
Issue Ratings:
TRUE144B: Bt1,800 million senior debentures due 2014 BBB-
TRUE14NA: Bt2,500 million senior debentures due 2014 BBB-
TRUE15NA: Bt3,500 million senior debentures due 2015 BBB-
TRUE16OA: Bt6,000 million senior debentures due 2016 BBB-
TRUE174A: Bt7,800 million senior debentures due 2017 BBB-
TRUE177A: Bt11,213 million senior debentures due 2017 BBB-
Up to Bt8,000 million senior debentures due within 2018 BBB-
Rating Outlook: Stable