AIS's ratings reflect its solid market position as Thailand's largest mobile-phone operator and its conservative financial profile. Fitch expects AIS will continue to generate solid earnings, as well as maintain its market share and financial leverage consistent with its current ratings.
KEY RATING DRIVERS
Ratings Equalised: The ratings reflect AIS's 'High' strategic and operational incentives to support AWN, in line with Fitch's Parent and Subsidiary Linkage Rating Criteria. This is underpinned by a significant 96% and 76% contribution from AWN's mobile and broadband businesses to the group's revenue and EBITDA in 2021, respectively. We regard management and brand overlap as 'High'. AIS fully owns AWN, enabling it to control AWN's strategy, financial policy and investments, with the common 'AIS' brand for products sold across its mobile, broadband, and content businesses.
Revenue Recovery: Fitch expects AIS to benefit from Thailand's gradual recovery from a relatively weak economy in 2020-2021. We forecast gross domestic product to grow by 3.2% in 2022 and 4.5% in 2023. The increase in business activity and tourism recovery should support AIS's revenue in 2023, which we forecast as a 2% per annum in 2022 and 2023 (1H22: 2.2% growth), respectively.
Margin Pressure: Lower ARPU will put pressure on AIS's profitability in 2022 and 2023. We forecast EBITDA to drop to around THB75 billion a year in 2022 and 2023 (2021: THB76.1 billion. Mobile operators are likely to maintain a low-price strategy for the pre-paid segment, even after the merger of True Corporation Public Company Limited (TRUE) and Total Access Communication Public Company Limited (DTAC; A+(tha)/Rating Watch Negative). We believe firms will remain cautious in raising tariffs for fear of losing market share, as the economy has yet to recover significantly.
Broadband Business Expansion: Fitch views the proposed acquisition of fixed broadband operator Triple T Broadband PLC (TTTBB) as in line with AIS's pursuit of a sustainable competitive position and profitable growth amid a slowing mobile business. We expect revenue from broadband to reach around 18% post-acquisition, from 7%. The deal will also solidify AIS's market position as Thailand's second-largest fixed broadband operator, raising its broadband market share to around 35%, from 15% in 1Q22; this is close to the 38% share of the largest operator, TRUE.
Sufficient Rating Headroom: We expect AIS's net debt/EBITDA to remain strong in 2022 and 2023 at around 0.8x-0.9x (2021: 1.0x). Free cash flow (FCF) is likely to stay positive FCF of around THB2 billion-6 billion per annum as its spectrum payments will drop to around THB11 billion per annum from THB 19.5 billion in 2021. Fitch believes low financial leverage will provide sufficient headroom to support higher capex and additional spectrum investment in the medium term.
The proposed debt-funded acquisition of TTTBB, if successful, will increase AIS's net leverage by about 0.4x, without taking into consideration any earnings from the acquired asset. We expect net debt/EBITDA to reach around 1.3x-1.4x at transaction closing in 1Q23, from 1.0x in 2Q22. This is still below the 1.8x level where we would consider a rating downgrade, although the rating headroom will narrow.
Leading Market Position: Fitch believes AIS will be able to maintain its service-revenue market share of around 45%-50% in the medium term (2Q22: 48%). It benefits from economies of scale due to its large subscriber base, a strong brand and extensive network coverage. AIS is also diversifying into fixed-broadband (FBB) services, with revenue rising strongly over the past few years, leading to a market share of around 15% in 2021 (2020: 12%). Nevertheless, FBB revenue contribution remained low at around 7.5% of AIS's total service revenue in 1H22.
DERIVATION SUMMARY
AIS's credit profile is supported by its solid market position and conservative financial profile. The company is rated higher than domestic peer Total Access Communication Public Company Limited (DTAC; A+(tha)/RWN) which is smaller, has a weaker market position, and higher financial leverage.
AIS's credit profile is stronger than that of Thai Beverage Public Company Limited (ThaiBev, AA(tha)/Stable), Thailand's largest beverage producer with a strong market position in spirits and a leading share of beer sales in its key markets of Thailand, Vietnam and Myanmar. They both have comparable business profiles, being strong market leaders in their industries. AIS has narrower geographical diversification, but its National Long-Term Rating is higher than that of ThaiBev by one notch due to AIS's lower financial risk.
AIS's National Long-Term Rating is one notch lower than that of PTT Public Company Limited (AAA(tha)/Stable), the largest fully integrated oil and gas company in Thailand, because AIS has a weaker business profile. PTT's business is larger and more diversified. It is the sole operator in mid- and downstream gas operations, one of Thailand's major upstream producers, and a dominant company in the oil and petrochemical industries. Both have conservative financial profiles with net debt/EBITDA of around 1.0x for AIS and 2.0x for PTT.
KEY ASSUMPTIONS
- Revenue growth of around 2% per annum in 2022 and 2023, reflecting an improvement in the economy as restrictions ease.
- Operating EBITDA margin of 40%-41% in 2022 and 2023 (1H22: 40.8%)
- THB30 billion a year in network capex in 2022 and THB35 billion in 2023 (2021: THB25.8 billion)
- 80% dividend payout ratio
RATING SENSITIVITIES
AIS
Factors that could, individually or collectively, lead to positive rating action/upgrade:
- Net debt/EBITDA below 1.0x on a sustained basis without deterioration in revenue market share
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- Net debt/EBITDA above 1.8x for a sustained period
- Unfavourable regulatory changes
AWN
Factors that could, individually or collectively, lead to positive rating action/upgrade:
- Positive rating action on AIS, provided incentives to support AWN do not weaken
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- Negative rating action of AIS
- Incentives for AIS to support AWN weaken, although we believe this is very unlikely
LIQUIDITY AND DEBT STRUCTURE
Manageable Liquidity: AIS has THB20.3 billion in debt maturing over the next 12 months from end-June 2022. Fitch believes liquidity is manageable, supported by its cash balance of THB10.1 billion and ability to access the domestic debt capital in light of its strong credit profile. In addition, we expect AIS will generate positive cash flow of around THB2 biiilion-6 billion per annum in 2022 and 2023.
ISSUER PROFILE
AIS, Thailand's largest mobile-phone operator, has a 48% service revenue market share and also offers fixed broadband services nationwide with 1.9 million subscribers, accounting for around 15% of the subscriber market. Intouch Holdings Public Company Limited and Singapore Telecommunications Limited (A/Stable) are major shareholders with 40% and 23% stakes, respectively.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
AWN's ratings are equalised with those of its parent AIS, reflecting our view that AIS has 'High' strategic and operational incentives to support AWN.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings