4G bid determining DTAC's future
Total Access Communication Plc (DTAC)
3Q15 net profit was weak as expected, and 9M15 earnings made up only 70% of the full-year forecast. As profit is still likely to remain weak in 4Q15, we may revise down our projection. 4G spectrum bid would determine DTAC's future from now on; we reiterate to hold and wait for the outcome. - - - 3Q15 profit weakens from 2Q15
DTAC's 3Q15 net profit and normalized profit were at the same level of B1.2bn, falling 11%qoq and 52.4%yoy (weak as expected). Service revenue (IC excluded) slipped 0.2%qoq and 1.5%yoy to B16.4bn. Cost of service (IC excluded) increased by 3.5%qoq to B10.2bn as the company invested in expanding its 3G coverage to 93% of Thai population with the 850 MHz spectrum, with disadvantage that devices of some subscribers detected the spectrum under concession system (30% regulatory cost), so regulatory cost to sales ratio in 3Q15 stayed high like in 2Q15. Although SG&A increased by 9.2%qoq because the company hired more employees due to the new service strategies and paid personnel bonuses, it was compensated by lower loss from mobile phone sales and dividend income.
- Revising forecast
9M15 net profit made up only 70% of the full-year forecast. 4Q15 profit is expected to stay weak like in 3Q15. Service revenue is projected to rise owing to seasonal effect and positive image of providing the best 4G service in Bangkok after the NBTC permitted DTAC to use the 15 MHz of 1800 MHz spectrum, thus increasing its 4G network bandwidth from 5 MHz (2.1 GHz) to 20 MHz, surpassing TRUE's 4G network bandwidth of 10 MHz. However, the regulatory cost from the concession was high, so DTAC would have to bear higher cost. Dividend income recognized in 3Q15 will not be booked again in 4Q15.
We are currently revising DTAC's earnings forecast, waiting for the outcome of the 1800 MHz bid on November 11. We expect DTAC to bid for the 15 MHz of 1800 MHz license, competing with TRUE. If DTAC wins the bid, it will become the No. 1 4G operator and expand 4G network in other province, retrieving business momentum from peers. However, if DTAC loses the bid, it will need to depend on the 1800 MHz concession. In the latter case, DTAC has to decide whether it should focus on 1) investing in the concession with high regulatory cost to maintain its revenue, or 2) maintaining the investment and its earnings, which might cause the company to lose income and fall to No. 3 if it loses to TRUE; both choices would have significant adverse effect on DTAC.
- Revise up forecast if DTAC wins, revise down if DTAC loses
We recommend holding, waiting for the bid outcome. If DTAC wins the bid, its competitive moment would improve, and then we would