True expects revenue growth of 7-9percent from its three service groups

True Group has targeted growth of 7-9 per cent in consolidated service revenue this year. True Corp's mobile group has targeted growth in the low double digits, supported by rising non-voice-data usage, while TrueOnline aims for high-single-digit growth driven by continued momentum of its broadband services.

Pay-TV operator TrueVisions is also shooting for the high single digits from an expanding base of premium subscribers after the establishment of the MPEG-4 system and more high-definition (HD) content.

To achieve the revenue targets, True Group has budgeted Bt26.5 billion for cash capital expenditure, of which Bt15 billion will finance the mobile group's expansion of TrueMove H's 3G+ coverage to more than 95 per cent of the population this year.

The True mobile group consists of 1,800-megahertz TrueMove, Real Move, and Real Future. Real Move provide third-generation service on 850MHz under a CAT Telecom resale contract, while Real Future holds a licence for the 2.1-gigahertz spectrum issued by the National Broadcasting and Telecommunications Commission (NBTC). These two 3G wireless broadband services use TrueMove H's 3G+ brand.

Recently True disclosed that this year it would increase the number of 3G-850MHz base stations nationwide to 13,000 from the present 11,000, and set up 5,000 2.1GHz base stations nationwide, as well as 2,100 base stations for a fourth-generation network in 15 provinces.

Of the remaining 2013 budget, Bt10 billion is for TrueOnline to expand its broadband network to cover 61 provinces and invest in non-core businesses. The rest, Bt1.5 billion, is to expand TrueVisions' capability to accommodate substantially more HD channels as well as to upgrade set-top boxes for the mass market audiences so it can offer value-added services such as video on demand and multi-platform content.

True Group's 2012 consolidated service revenue grew 8.9 per cent year on year to Bt61.9 billion.

Its net income from ongoing operations excluding deferred income tax was a loss of Bt5.4 billion, compared with a Bt3.2-billion loss in 2011 from lower EBITDA (earnings before interest, taxes, depreciation and amortisation) and higher depreciation and amortisation, which offset declines in interest and income-tax expenses. Its net loss was Bt7.4 billion in 2012, due to a one-time impairment loss (mainly from the impairment of TrueMove's 2G network assets).

Its EBITDA declined slightly (2.1 per cent) year on year to Bt16.7 billion, while EBITDA margin decreased to 21.8 per cent (from 26.9 per cent in 2011) mainly from the substantial increases in cash operating expenses and higher net network interconnection costs at True Mobile Group.

According to Moody's Investors Service, True Group's 2012 results can be accommodated in its ratings despite building pressures on margins and leverage. There is no immediate impact on True Corp's and TrueMove's "B2" ratings and stable outlooks.

True Corp is listed on the Stock Exchange of Thailand; the Charoen Pokphand Group is the major shareholder (64.74 per cent). Its wireless business is conducted predominantly through its 99.99-per-cent subsidiary Real Future and a 99.32-per-cent subsidiary, TrueMove, which together position it as Thailand's third-largest mobile telecommunications operator.

"The increase in customer acquisition costs is within expectations, as True Corp attempts to leverage its early-mover advantage for 3G services under TrueMove H and gain market share, before competition further intensifies with the roll-out of services by all three operators under the new 2.1GHz licences," said Nidhi Dhruv, a Moody's analyst.

TrueMove H had 2.9 million subscribers as of December, substantially short of the company's target of 4 million, although this was partially because of constraints on availability of mobile-phone numbers. Over the near term, Moody's expects an intensely competitive operating environment for 3G service operators in Thailand given that a level playing field now exists with all three operators having equal allocations of 3G spectrum. This will test True's execution strategy, and will continue to pressure margins, the agency said.

True Corp's leverage as measured by reported debt to EBITDA was higher than expected at 6.1 times on account of higher debt-funded capital expenditure of Bt19.3 billion for expansion of TrueMove H's 3G services, and the payment of Bt7.2 billion (including value-added tax) towards the first 50-per-cent instalment of the 2.1GHz spectrum fee.

"Further network expansion capex and the balance payment for spectrum fees, both of which will be primarily debt-funded, [are] likely to keep adjusted gross leverage in the range of 5.5-6.0 times over the next one to two years, although this can be accommodated in the current rating given the regulatory and operating certainty provided," said Dhruv, also lead analyst for True Corp and True Move.

Issuance of the 3G licences by the NBTC brings certainty to True operating platforms ahead of the expiration in September of TrueMove's 1,800MHz concession agreement with CAT, while its 850MHz 3G reseller agreement with CAT is also being renegotiated as a result of regulatory scrutiny by the NBTC.

Moody's also noted that the cumulative fees for the 2.1GHz licences at 5.25 per cent are much lower than the 30-per-cent revenue-sharing arrangements under TrueMove's existing concession and the cost-plus arrangement under Real Move's contracts with CAT. The lower fees should support operating margins and help in moderate de-leveraging at the True Corp level over the medium term.

But additional capex requirements plus increased marketing and operating costs will result in negative free cash flows at least over the next two years, Moody's said.