The “stable” outlook reflects the expectation that SAMTEL will remain competitive when bidding for public projects and follow a prudent financing policy by retaining an appropriate cushion when undertaking sizable projects. Given that SAMTEL is 70% owned by Samart Corporation PLC (SAMART), its credit rating is inevitably influenced in part by the quality of SAMART’s credit profile.
TRIS Rating reported that SAMTEL was founded by the Vilailuck family in 1986. At the end of 2010, the company was 70% owned by Samart Corporation PLC (SAMART), a holding company investing in telecommunications and communications networks and engineering services. SAMTEL’s strong business profile reflects its leading position in Thailand as an integrated IT solutions provider. The company has a proven record of undertaking a broad range of IT projects. Its edge in undertaking government projects has improved quite noticeably over the past few years, illustrated by its consecutive stream of successful bids. SAMTEL’s business profile is supported by recurring income which adds a measure of stability to the overall performance and reduces any liquidity shortfall during an industry downturn. In the short run, revenues from turnkey projects will continue to dominate SAMTEL’s top line performance, exposing the company to the effects of lumpy project sizes and changes in public IT budget policies. In the medium term, the accumulation of successful completions of turnkey projects should pay off appreciably in terms of renewable network maintenance agreements. The project backlog at the end of 2010 was Bt3.65 billion. TRIS Rating believes that the company should be able to continue securing a respectable number of projects so as to sustain its revenue base in the range of Bt6-Bt8 billion per annum.
TRIS Rating said, SAMTEL’s risk profile is pressured by volatile performances from turnkey projects, which add an element of variability to its cash flow. Fluctuations in turnkey revenues reflect the nature of one-time projects that vary greatly in size. Performance is also exposed to uncertainty and sometimes a lack of continuity in IT budgets and spending from the public sector. In addition, SAMTEL’s credit profile is weighed down by high concentration risk as its revenues depend heavily on projects for TOT.
TRIS Rating also said, prospects for demand for IT services are optimistic. An expansion in economic activity should play a key role driving demand for data services. The country’s network infrastructure is in a transition phase, changing from a packet-switching infrastructure network to the Next Generation Network (NGN), an IP-based system. In the long term, both the public and private sectors must upgrade their IT systems to remain competitive in an environment which is moving toward higher levels of liberalization and globalization.
SAMTEL’s operating margin has been under pressure since 2007 largely due to strong growth in the lower-margin trading/turnkey projects. Intense competition in the trading/turnkey business also exerts additional pressure on the company’s margins. The profit margins in the long run could improve from maintenance agreements and network capacity expansions that follow the previously completed turnkey projects. SAMTEL’s leverage largely depends on the sizes of projects on hand. Most loans are secured by cash receipts from the project owners. With the ratio of secured debts to total assets at 32% at the end of 2010, SAMTEL’s issue rating for senior debts will likely be one notch below its company rating, said TRIS Rating.
Samart Telecoms PLC (SAMTEL)
Company Rating: BBB+Rating Outlook: Stable