Fitch: Intense Competition in Thai Mobile Market Challenges DTAC
OREANDA-NEWS. Thailand's second-largest mobile operator by service revenue, Total Access Communication Public Company Limited (DTAC: BBB/AA(tha)/Stable), faces a major challenge to regain market share and stabilise earnings, weighing on its credit profile in the medium term, says Fitch Ratings.
Fitch expects DTAC's service revenue to drop by 1.5%-2.0% in 2016 (2015: down 3%), as the company continues to lose market share due to intense competition in Thailand's mobile market. DTAC's service revenue has fallen yoy for the previous nine quarters to 2Q16 and its service revenue market share, excluding interconnection revenue, declined to 27.5% in 1Q16 (2014: 29.7%, 2015: 28.6%).
Fitch does not expect DTAC's market position to improve significantly in 2016 due to the tough operating environment. The company's competitors are likely to maintain aggressive marketing strategies to increase their market share. Fitch expects the largest operator, Advanced Info Service Public Company Limited (AIS; BBB+/AA+(tha)/Stable), to regain revenue market share to around 52% after it fell to around 50% in 4Q15 and 1Q16. True Corporation Public Company Limited's mobile business, TrueMobile, is the country's third-largest operator and Fitch expects it to continue acquiring market share as it aims to become the second largest.
However, Fitch does not expect DTAC's weakening market position to immediately affect its ratings, as it has a sufficient buffer against lower earnings and negative FCF in the short-term due to its strong financial position. The company also revised down its dividend policy at the start of 2016 to no less than 50% of net profit, from 80% previously. DTAC's FFO-adjusted net leverage of 1.8x at end-2Q16 remains comfortable for its current rating and Fitch forecasts FFO-adjusted net leverage of 2.2x for end-2016.
Fitch believes DTAC's competitors have spectrum advantages, particularly after DTAC did not secure new spectrum in the 2015 and 2016 auctions. Most of the company's spectrum (35MHz) is under the concession regime, which has a short operating life expiring in 2018, although DTAC spectrum portfolio remains large at 50MHz (AIS: 40MHz, TrueMobile: 55MHz). Its 15MHz of spectrum under the licence regime on 2.1GHz band may not be enough to support the rapid increase in mobile traffic and technology upgrades in the medium term.
Fitch says DTAC will need to balance capex and traffic allocation between the licence and concession networks while considering related regulatory costs, as revenue generated from the concession assets is subject to a higher annual regulatory fee than from the licence regime.
Fitch does not believe DTAC's non-voice revenue growth of around 10%-15% in 2016 will offset an expected drop in voice revenue of around 15%-20% and expects DTAC's operating EBITDAR to decline by 6% to THB25.3bn in 2016 (2015: THB29.2bn; 2014: THB32.4bn) due to falling revenue and higher marketing expenses, particularly for handset subsidies.
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