Information & Communication
- Mobile operators with strong normalized income in 1Q1
The ICT sector's 1Q15 profit grew by 9.1%yoy (outperforming the market). TRUE and ADVANC enjoyed significant revenue growth after previously focusing on investment in network improvement. Moreover, TRUE's overall cost decreased because the company has stopped recognizing depreciation cost from 2G network since September 15, 2014 and its interest expense dropped, and ADVANC's regulatory cost decreased after larger number of subscribers have been migrated from the old concession system with high regulatory cost to the new license system with low regulatory cost. However, these positive factors were negated by lower revenue from the non-mobile business as a result of the delayed government project (ICT contract) and weaker purchasing power (mobile phone sales). Meanwhile, the satellite business grew significantly thanks to high demand (high-resolution broadcasting and internet service in areas inaccessible by ground network service), thus resulting in higher occupancy rate.
- Profit to fall in 2Q15 but rebound in 2H15
Although the ICT sector's earnings are likely to weaken from 1Q15 because 2Q15 is a low season for mobile operators (70% of the sector's total earnings), it is expected to rebound from 2Q14 owing to higher revenue from data service and decreasing regulatory cost; three mobile operators are projected to have over 90% of its subscribers on the new license system in 2Q15 (versus 76% in 2Q14). TRUE would also benefit from absence of depreciation cost and lower interest expense. THCOM's profit is projected to grow both yoy and qoq for the remainder of the year since occupancy rates of every satellite are projected to grow continuously thanks to higher demand. Although earnings from other businesses are projected to weaken in 2Q15, almost every business is projected to rebound in 3Q15 owing to the economic recovery, and then make the year's peak in 4Q15, which is a high season for the mobile business and the first quarter for ADVANC to stop recognizing profit depreciation cost from 2G network.
- NEUTRAL. Top pick: THCOM
After 1Q15 earnings reports, we revise down the ICT sector's earnings forecast, projecting the sector's net profit to grow by only 22% in 2015 (close to EPS growth forecast). Our recommendation is NEUTRAL. Top pick is THCOM(FV@B51) since its earnings are projected to grow best for the remainder of the year and concern about the delayed government project is likely to recede. We also favor ADVANC(FV@B285) with potential strong earnings and positive sentiment from 4G license bid in late 2015, as well as its parent company INTUCH(FV@B113).