Fitch Ratings has given Total Access Communication (DTAC) a BBB investment grade for long-term foreign and local currency issuer default ratings (IDR), with a stable outlook.
Fitch projects DTAC should be able to maintain robust profit margins and operating cash flow over the medium term. Despite a continued deterioration in its market position, it expects the country's third-largest mobile operator will maintain its funds from operations (FFO) below 2.5x over the next three years, commensurate with its current ratings.
DTAC was affirmed to have a national long-term rating at AA with a stable outlook, although the national short-term rating has been F1+.
Fitch expects DTAC's FFO to deteriorate in 2018 and 2019, but to remain strong between 25-27 billion baht per year. In 2017, the FFO was an average of 29 billion baht.
The company's Ebitda (earnings before interest, taxes, depreciation and amortisation) margin is expected to narrow to 34%-36% from a 38% level in 2017. This is primarily because of additional payments to TOT Plc to use the 2.3-gigahertz spectrum and the rental payments of concession equipment to CAT Telecom.
Fitch sees major challenges for DTAC to regain market share and stabilise earnings in the medium term. The company continues to lose market share because of intense price competition and its inferior network coverage.
DTAC's revenue market share is expected to decline to around to 23-24% in 2018, from 25% in 2017.
Fitch believes DTAC's spectrum portfolio is weaker than that of competitors.
DTAC requires additional spectrum over the medium term on top of the 2.3GHz it has access to under a partnership with TOT and 1.8GHz it acquired in August 2018. DTAC has wide spectrum bandwidth, but only in the high-frequency band, including the 1.8GHz, 2.1GHz and 2.3GHz spectrum. These spectrums are suitable for servicing city areas, but DTAC needs to enhance its low-frequency spectrum band on 900MHz to service rural areas.
For financial leverage, DTAC gets a conservative credit rating. The company's financial leverage is likely to stay modest in 2018 and 2019, with FFO adjusted net leverage of around 1.5x-2.0x on moderate capital expenditure and spectrum investment. The low financial leverage should provide the financial flexibility to support additional investment over the medium term.
Fitch may consider a negative rating if the FFO adjusted net leverage remains above 2.5x.