Tris Rating has affirmed the company rating on True Move H Universal Communication Co (TUC) and the ratings on TUC's senior unsecured debentures at BBB+.
Tris also assigns a rating of BBB+ to TUC's proposed issue of up to 10 billion baht in senior unsecured debentures. The proceeds from the new debentures will be used to refinance debts coming due and for working capital.
The ratings reflect TUC's status as a core business unit of True Corporation Plc (TRUE is rated BBB+/stable by Tris), as well as the company's continued improvement of operating performance.
TUC's competitive position has improved at a steady rate, a result of significant investment in spectrum portfolio, network capacity and coverage, as well as various marketing campaigns.
The ratings are constrained by TUC's high leverage and the intensifying competitiveness in the mobile industry.
In the first nine months of 2018, the overall market in terms of service revenue (excluding interconnection charges or IC) grew 2.8% year-on-year (y-o-y) to 196 billion baht.
The market has shown some signs of slowing down, with the growth rate of service revenue (excluding IC) below 3% for two consecutive quarters, compared with average growth of 4.5% per quarter since the first quarter of 2016.
The slowdown was partly attributed to unlimited data plans offered by competing operators.
TUC continues to deliver strong performance, according to Tris. TUC's service revenue (excluding IC) grew 9.9% y-o-y to 55 billion baht, continuing to outpace the industry growth rate. Market share by service revenue (excluding IC) was 29%, compared with Advanced Info Service (AIS) at 47% and Total Access Communication (DTAC) at 24%.
TUC's financial profile was in line with Tris's expectations. For the first nine months of 2018, TUC reported 81 billion baht in revenue and 9 billion in funds from operations (FFO), excluding the effect of asset divestment to the Digital Telecommunications Infrastructure Fund.
Leverage remains high. At the end of September 2018, the adjusted ratio of debt to capitalisation was 60.2%. The adjusted ratio of debt to earnings before interest, tax, depreciation and amortisation was 8.6 times (annualised, from the trailing 12 months), and the adjusted ratio of FFO to debt was 6.4% (annualised, from the trailing 12 months).
The stable outlook is based on the expectation that TUC will continue to deliver sound operating performance and effectively monetise its investment without materially hurting its financial profile. TUC's status as a core subsidiary of TRUE is expected to remain unchanged.
The possibility of a rating upgrade is limited for the next 12-18 months, considering TUC's financial profile. The company's ratings could be downgraded if its operating performance is notably weaker than Tris's expectations.
Several legal uncertainties, like access charges or excise tax issues, will persist and will not be resolved any time soon.
However, the probability of seeing any material adverse legal consequences in the near term is believed to have subsided to some extent.
The ratings could be under downward pressure if the legal outcomes significantly affect TUC's financial profile.