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TRIS Rating Assigns a "BBB" Rating to "UCOM"

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Bangkok--Apr 2--TRIS Rating

TRIS Rating Co., Ltd. has assigned a "BBB" rating to United Communication Industry PLC (UCOM). The rating is based on UCOM's strong business position in each business group: data communication network provider, distributor of mobile phone & accessories, and telecom network solution & construction.   The rating also takes into consideration UCOM's experienced management team, its well-recognized brands and strong growth prospects of the data communication business.   However, these strengths are partially restrained by continuing intense competition in the data communication business, mobile phone distribution and the volatility of network solution business.   Although UCOM's financial leverage has steadily improved, its cash flow protection remains low.   By holding 42% of TAC shares, which are listed on the Singapore Stock Exchange, UCOM retains some financial flexibility.

TRIS Rating reported that Thailand still has a low penetration rate for internet use and broadband/online use. The markets are expected to have bright prospects, due to demand from both corporate groups and retail consumers. The government policy to promote usage of modern technology is one of major factors to boost demand for high-speed data communication. The government would like to implement electronic data transmission to most government agencies and state enterprises and has set a target of 1 million broadband users within 2004.   In terms of supply, there are several service providers in the market.   Prices of service providers, including UCOM, have been decreasing over time due to higher competition, in line with the trend of the world broadband market.   Nevertheless, UCOM, according to the International Data Corporation (IDC), has an acceptable ranking for its high-speed data service, as measured in several aspects such as after-sales service and availability of bandwidth.

TRIS Rating mentioned about the mobile distributors including UCOM Group that they have encountered lower margins due to heightened competition. After the mobile operators unlocked International Mobile Equipment Identity (IMEI) in 2002, handset prices declined because there are more distributors in the market. The handset distributors have moved to capture the lower end of the market.   Technological risk is a major factor that can create huge inventories of obsolete phones and accessories, therefore prudent distributors have to carefully manage their inventories.

For the network solution operators including UCOM Group, TRIS Rating said they need to bid for their projects, necessitating close relationships with potential customers. This business is uncertain both from bidder competition and the investment budgets of customers. However, the current government has attempted to build more telecom and high speed data networks which can result in higher construction spending from government agencies and private sector.

TRIS Rating said that UCOM's total debt declined from Bt9.9 billion in 2000 to Bt8.1 billion in 2001, Bt6.7 billion in 2002 and Bt6.3 billion in 2003. UCOM's debt to capitalization ratio improved from 66% in 2000, to 54% in 2001, 46% in 2002 and 41% in 2003.   However, its cash flow protection remains low. The funds from operations to total debt ratio was 15.6% in 2001, 16.6% in 2002 and stayed at 16% in 2003. As of December 2003, UCOM holds 197 million shares of TAC, a mobile telephone operator listed on the Singapore Stock Exchange.   This investment has a market value of approximately Bt13 billion while net debt rests at Bt5 billion.   Therefore, the current value of the investment covers net debt approximately 2.7 times. Such market value can provide some financial flexibility for UCOM, TRIS Rating said.End.

-NT-

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