Fitch Ratings gives AWN a BBB+ on stable outlook

Fitch Ratings gives AWN a BBB+ on stable outlook

Fitch Ratings has assigned Advanced Wireless Network Co (AWN) a BBB+ for long-term foreign- and local-currency issuer default ratings. The outlook for AWN is stable.

AWN's ratings are in line with those of parent firm Advanced Info Service (AIS) at BBB+/stable, reflecting the strong link between the two companies. AIS fully owns AWN, enabling it to control AWN's strategy, financial policy and investments.

AWN accounted for 97% of the group's revenue and 85% of earning before interest, tax, depreciation and amortisation (ebitda) in 2017, and as the operator of AIS's licensed business it has strategic importance to AIS.

In August 2018, AWN was awarded 2.1GHz, 1.8GHz and 900MHz spectrum licences and won the auction for an additional 5MHz of 1.8GHz spectrum.

AIS has maintained its leading market position as Thailand's largest mobile-phone operator, and Fitch said AIS should be able to maintain its service-revenue market share of around 50% in the medium term.

AIS's credit profile is supported by its solid market position as Thailand's largest mobile phone operator and by its conservative financial profile. In addition, AIS benefits from economies of scale because of its large subscriber base, as well as a strong brand and extensive network coverage.

Fitch rates AIS higher than Total Access Communication Plc. DTAC's BBB ratings is due to its relatively smaller size, weaker market position and lower profit margin compared with AIS.

Fitch said AIS's service revenue, including mobile and fixed broadband, is expected to increase by 5-6% in 2018 and 2019, supported by a continued rise in mobile data usage and fixed-broadband subscribers.

Mobile service revenue has seen a 3-4% increase in 2018, and fixed-broadband revenue has increased to around 4 billion baht, up from 3 billion in 2017.

Fitch expects AIS's operating earnings before interest, tax, depreciation, amortisation and restructuring or rent costs (ebitdar) to further improve in 2018 to about 78 billion baht.

AIS's ebitda was reportedly 74 billion baht in 2017. Ebitdar margin is likely to improve to 47-48% in 2018 and 2019, supported by lower marketing expenses and regulatory costs.

In the first half of 2018, AIS's ebitdar margin improved to 47.5%, up from 46.6% in 2017. Marketing expenses were at 6.6% of AIS's service revenue, down from 7.7% in 2017. AIS also benefited from the decrease in universal service obligation fee, which was altered to 2.5% of licence holders' service revenue in May 2017 from 3.75% previously.

Fitch expects AIS's liquidity to be manageable, even though free cash flow (FCF) is negative in 2018. Moreover, FCF could turn positive in 2019, due to lower spectrum payments after AIS completes the major roll-out phase of its 3G and 4G networks during the year.

Fitch noted that AIS's investment in networks was 41 billion-48 billion baht annually during the previous two years.

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