Wednesday, June 03, 2020

Advanced Info Services Plc

Jun 25. 2014
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By SCB Securities

On the right track for recovery BUY

Advanced Info Services Plc (ADVANC)

 - Expect 2Q14 profit to decline both YoY and QoQ - but to be its bottom

 - Improving revenue from voice and non-voice and broader margin from regulatory cost savings will drive recovery from 2H14 onward  

 - Reiterate Buy with PT of Bt300

2Q14 to mark earnings bottom in this cycle. On Monday morning ADVANC held an earnings preview meeting. As expected, 2Q14 earnings remained under pressure from further slowdown in voice revenue due to the stumbling economy and rising costs, particularly the depreciation and amortization expenses and network opex brought by the buildup of its 3G network. We expect earnings to fall both YoY and QoQ to Bt8.9bn which would bring 1H14 to 48.5% of our full-year estimate. We maintain our forecast as we believe 2Q14 will be bottom for both this year and this cycle, with recovery henceforth. Backing recovery will be better revenue, both voice and non-voice, and better EBITDA margin on more stable costs after the completion of 3G network rollout in 2Q14. Earnings are expected to accelerate 23% in 2015 from 3.9% this year. We reiterate Buy on the stock with an unchanged DCF PT of Bt300 as we believe ADVANC is ready to catch up to peers in both earnings and valuation.    

2Q14: expected to decline 4.3% QoQ and 3.7% YoY to Bt8.9bn. Since the fall QoQ comes largely from seasonality, we focus on the YoY comparison. The YoY drop comes from flat service revenue ex-IC growth brought by a plunge of ~12% YoY in voice revenue on a less robust economy plus rising 3G-related costs. However, now that the 3G network is in place, these costs will subside.      

Earnings to recover from 2H14 onward. We expect recovery from 3Q14 after touching bottom in 2Q14 and are comfortable with our 2014 earnings growth forecast of 3.9% YoY. We forecast a surge of 23% in 2015 and 27% in 2016. Leading the strong growth will be: 1) accelerating non-voice revenue growth from an accelerating rise in postpaid subs; 2) more rapid reduction in regulatory cost from faster 3G migration and lower roaming fees from rising smartphone use; 3) lower marketing expense/revenue ratio in 2015 as its network will no longer be disadvantageous. 

Buy at target price of Bt300. The collapse in share price is a good chance to buy. Valuation looks attractive at this level, trading at 16.8x 2014PE and falling. This seems cheap against its strong average earnings growth of 18% in 2014-16. Its dividend yield is high at 5.9% in 2014 and 7.3% in 2015. We expect 1H14 DPS of Bt6.19, implying dividend yield of 2.9% for a 1.5-month holding period (normal XD for 1H DPS is around mid-August).


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