Advanced Info Service's Broadband Acquisition to Boost Competitiveness & Drive Growth

AIS said on 4 July 2022 that it has approved for its fully owned mobile subsidiary, Advanced Wireless Network Company Limited (AA+(tha)/Stable), to acquire a 100% stake in TTTBB and a 19% stake in Jasmine Broadband Internet Infrastructure Fund (JASIF) - the owner of TTTBB's fibre-optic assets - from Acumen Company Limited for total cash consideration of THB32.4 billion. The parties aim to complete the transaction by 1Q23, subject to shareholder and regulatory approval.

The acquisition is aligned with AIS's strategy to boost its fixed-mobile convergence capabilities, allowing it to diversify its mobile business to other telecom services, such as television, broadband and wireless, and strengthen its business profile. We expect the revenue contribution from the broadband business to reach around 18% post-acquisition, from 6% currently. The deal will also solidify AIS's market position as Thailand's second-largest fixed broadband operator, raising its broadband market share to 35%, from 15% in 1Q22; this is close to the 38% share of the largest operator, True Corporation Public Company Limited (TRUE). TTTBB will also provide AIS with access to upcountry broadband markets, where AIS has limited network coverage, and enhance its established position in the urban market.

We expect Thailand's fixed-broadband market to continue to expand in the medium term, as the sector's penetration remains moderate, at around 53% of households in 2021. Industry competition has been more rational than that in the maturing mobile segment in the past few years due to rising adoption of high-speed broadband services.

The proposed acquisition follows earlier attempts at consolidation in Thailand's telecom sector, including the merger of mobile rivals - Total Access Communication Public Company Limited (DTAC; A+(tha)/Rating Watch Negative) and TRUE. The deal was driven by a need for scale to support cost efficiencies amid the mobile sector's slow growth and high investment. Competition in the domestic mobile sector has been tough over the past few years, as the proliferation of unlimited mobile-data plans has squeezed data yields and slowed industry growth.

The proposed debt-funded acquisition will increase AIS's net leverage by about 0.4x, without considering any earnings from the acquired asset. We expect net debt/EBITDA to reach around 1.4x-1.5x at transaction closing in 1Q23, from 0.9x in 1Q22. This is still below 1.8x level where we would consider a rating downgrade, although rating headroom will narrow.

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