Fitch: SE Asia Telcos' Margins to Decline, Data Importance Grows

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2014 Outlook: South-East Asia Telecommunications www.fitchratings.com">www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726143">http://www.fitchratings.com">www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726143 SYDNEY/SEOUL/SINGAPORE, December 09 (Fitch) Fitch Ratings says in a special report released today that competition and declining use of traditional voice and text services will lead to lower margins for most south-east Asian telcos in 2014. However, data demand growth will generally outpace margin decline, so cash generated and credit metrics will be broadly stable or slightly improve, except in Thailand where large investment will increase leverage. In Indonesia, we expect the top four telcos will continue to dominate the market and that their credit metrics will be stable. Small, struggling companies are likely to be forced into mergers to survive, as the gap with the top four widens. Barring acquisitions, the telco tower companies' leverage will improve as free cash flow (FCF) rises due to growing EBITDA and low levels of maintenance capex. In Malaysia, growth and largely constant capex and dividends will offset the 100bp-150bp margin erosion we expect for wireless telcos. Fixed-line and broadband operator Telekom Malaysia Berhad (A-/Negative) has low ratings headroom. However, its operating EBITDA margin will remain resilient as its growing high-speed broadband business and lower capex should ensure stable leverage. In the Philippines, operating EBITDA margins will continue to deteriorate due to unlimited/bucket tariff offerings, larger handset subsidies and substitution of data for voice/text services. Nevertheless, more data adoption should lead to revenue rising by the mid-single-digits, and lower capex should ensure positive FCF and stable credit profiles for both the main operators - Philippine Long Distance Telephone Company (BBB/Stable) and Globe Telecom, Inc. (BBB-/Stable). We expect profitability for all three Singapore telcos to remain stable, driven by better data pricing, which will offset the cost pressures of handset subsidies and higher pay-TV content costs. Capex will trend lower as 4G investments are largely complete. Singapore Telecommunications Limited's (A+/Stable) leverage will remain stable as cash flow from operations will cover its capex and dividends. We forecast that annual FCF and available cash will be sufficient to fund its acquisition budget of SGD2bn over three years. In Thailand, the private operators' exposure to legal and regulatory risks will decline as they migrate customers to the new 3G licence system, which will overcome many of the weaknesses of the former 2G concession system. Technology upgrades to 3G should support growth in non-voice revenue, and offset declining voice services. A significant increase in capex for the 3G network will lead to deterioration in credit metrics. However, the two largest mobile operators - Advanced Info Service Public Company Limited (BBB+/Stable) and Total Access Communication Public Company Limited (BBB/Stable) - have sufficient headroom in their ratings. The report, '2014 Outlook: South-East Asia Telecommunications', is available on www.fitchratings.com">www.fitchratings.com or by clicking on the link above. Contact: Nitin Soni Associate Director +65 6796 7235 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec City Tower 4 Singapore 038986 Shelley Jang Associate Director +82 2 3278 8370 Obboon Thirachit Director +66 2108 0159 Steve Durose Senior Director Head of TMT, Asia Pacific +61 2 8256 0307 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com">www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.