True Move, like other telecommunications companies in Thailand, also faces risk from various legal disputes. It is involved in significant legal disputes with government-owned telecommunications company TOT Public Co. Ltd. and CAT Telecom Public Co. Ltd. The new regulator and the Ministry of Information, Communication and Technology are also investigating the revised contracts between CAT and True Corp. after the latter acquired Hutchison Group’s local telecom operations in January 2011. The regulator has recently made some adverse comments on the contract, but we believe True Move would be able to address the regulator’s concerns.
True Move has a fair market position as the third-largest wireless service provider in Thailand, with a share of about 25% as of March 31, 2012. We expect the company’s market position to deteriorate with high ARPU customers shifting to True Move H. Growth in data services is also likely to benefit True Move H rather than True Move.
True Corp.’s significant indirect ownership of True Move and CP Group’s majority ownership of True Corp. support True Move’s credit quality. True Move shares a brand name with True Corp., which has a stronger business (the company has a dominant position in the fixed-line and broadband market in Bangkok Metropolitan Area and is a leading pay-TV provider in Thailand) and somewhat better financial risk profile. We consider True Move to be core to True Corp.’s strategy, which focuses on bundling fixed-line, wireless, and pay-TV services. Therefore, in our opinion, True Corp. has a strong interest in ensuring True Move’s financial health and viability. We understand that CP Group has a favorable business position and cash flows with operations in agribusiness, food and retail and distribution as well as good financial flexibility. We also believe that CP Group is committed to True Corp.; it has also provided support to True Move in the past.
Standard & Poor’s base-case scenario
Standard & Poor’s Ratings Services’ base-case scenario for True Move expects the company’s debt-to-EBITDA ratio to increase to almost 8x and the FFO-to-debt ratio to fall to less than 10% by end of 2013. Our projections are based on the following assumptions:
— Revenue would grow by about 3% in 2012 and decline by about 4% in 2013. This is based on our expectation that the company’s high ARPU postpaid customers and some prepaid customers will move to True Move H. We assume that the company would be able to continue operations after October 2013. We expect the company’s handset sales to continue to grow rapidly.
— EBITDA margin will be about 16% in 2012 and will gradually fall to about 11% in 2014 due to the movement of high ARPU postpaid customers to True Move H.
— Working capital movements are likely to be positive as postpaid customers would move to True Move H.
— Capital expenditure will be about 6% of revenue and will be mainly used to maintain the existing network.
We assess True Move’s liquidity to be “adequate”, as defined in our criteria. This assessment is despite our expectation that the company’s sources of liquidity will exceed uses by more than 2.0x in fiscal years ending Dec. 31, 2012 and 2013. True Move’s highly leveraged financial profile and our expectation that the company’s operating and financial performance will weaken constrains our liquidity assessment. The company’s net sources of liquidity are likely to exceed cash requirements even if EBITDA declines 20%. Our assessment is based on the following expectations and assumptions:
— As of Dec. 31, 2011, True Move’s liquidity sources include short-term investments of about Thai baht (THB) 2.7 billion, and undrawn credit facilities of about THB2 billion.
— The sources also include our projected FFO of about THB2.9 billion and positive working of THB3 billion over the next 12 months.
— Uses of liquidity include debt due in the next 12 months of THB2.6 billion.
— Uses also include projected capital expenditure of THB2.5 billion.
The company does not have any financial covenants to be complied with for the next two to three years. The company also benefits from fungibility of funds across True Mobile Group and support from parent True Corp.
The stable outlook reflects our expectation that True Mobile Group, True Corp., and CP Group will continue to support True Move.
We could lower the rating if we do not expect True Corp. to appropriately manage True Move’s concession expiry in September 2013. We could also downgrade True Move if support from group entities weakens.
We do not expect the rating to be raised in the next 12 months as True Corp. also has a highly leveraged financial profile and is facing challenges relating to True Move’s concession expiry.