Fitch sees slow revenue but high earnings growth for telecoms
Service revenue for the three largest mobile-phone operators is likely to grow at a low single-digit rate next year on improvement in the economy, according to Fitch Ratings.
Voice revenue will continue to decline, but at a slower pace. Non-voice revenue will continue to grow strongly, which should be enough to offset the decline in voice revenue, according to the rating agency’s “2015 Outlook: Thai Telecommunications” report released yesterday.
Despite slow revenue growth, earnings and cash flow from operations will grow strongly next year for the major mobile phone operators – Advanced Info Service (AIS; “BBB+/stable”), Total Access Communication (DTAC; “BBB/positive”) and True Corporation’s mobile business (not rated).
Earnings growth will be supported by regulatory cost savings under the third-generation licensing framework compared with the 2G concession framework.
Aggregate regulatory cost as a percentage of service revenue is forecast to fall by 4-5 percentage points next year.
However, the cost savings could be partly offset by higher marketing expenses due to intense competition.
The major operators are expected to continue offering aggressive promotions to increase 3G handset/smartphone penetration and adoption of data usage, while defending market share.
Free cash flow is likely to be negative for the major mobile operators in 2015, mainly because of high capital expenditures required to build the 3G networks and investment in 4G spectra.
Financial leverage will increase, but the ratings of the telecoms already incorporate the likelihood of low growth in earnings before interest, taxes, depreciation and amortisation and a decline in credit metrics.
