Total Access Communication
Fresh earnings cut
Total Access Communication Plc (DTAC)
Investment thesis
Although DTAC will have more financial flexibility than other mobile operators who won 4G licenses due to the lack of burden from the spectrum fee, heavier 4G CAPEX on Build-Transfer-Operate (BTO) assets is necessarily required under the 1800MHz concessionary regime to keep its 4G service quality intact relative to its rivals. Moreover, the MVNO wholesale-resale contract (as in BFKT’s model) on 1800MHz spectrum to avoid transferring BTO assets under the 1800MHz concession looks unlikely because that frequency is under concession. Its negotiation with CAT/NBTC to use the unused 20MHz of 1800MHz spectrum for 4G services is under way, which can be used until the concession expires in Sep 2018. Due to the heightened future operational risk after concession expiry, our HOLD rating stands.
FY16-28 profit cut to reflect more conservative assumptions
In light of the forthcoming and in turn sooner-than-expected intensifying competition from JAS and TRUE, we decided to adopt more conservative assumptions against DTAC’s projections. Firstly, we revised up our CAPEX assumptions—by 22% for FY16 (to Bt31bn), by 28% for FY17 (to Bt29bn) and by 30% for FY18 (to Bt27bn)—to reflect the raised 4G capacity to keep the 4G network quality intact on its existing 1800MHz concession and its 2100MHz license. The 15MHz (of 25MHz in total) under its 1800MHz concession and the 5MHz (of 15MHz) under its 2100MHz license are allocated to 4G services.
Secondly, we slashed the blended ARPU assumptions by 2-5%, FY16-18, to Bt184-191/sub/month, and by 7-19%, FY19-28, to Bt164-181/sub/month, to factor in the more competitive data pricing scheme to keep existing subscribers. Thirdly, we further trimmed our cumulative subscriber (excluding 4G subscribers) assumptions—by 3% for YE16 (to 27.1m), by 5% for YE17 (to 26.8m) and by 7% for YE18 (to 26.5m)—due to the greater upcountry subscriber loss to TRUE and JAS than was previously assumed. Hence, we cut our earnings projections—by 20% for FY16 (to Bt5.6bn), by 27% for FY17 (to Bt5.3bn), by 35% for FY18 (to Bt5.0bn) and by 19-22% for FY19-28 (to Bt4.8-5.0bn). Our YE16 DCF-based target price falls by 22% (to Bt35).
Insights into 4Q15—weaker core earnings
We estimate a Bt1.6bn net profit for 4Q15, down 15% YoY but up 30% QoQ. Stripping out a one-time extra gain in 4Q14 and FX, core profit would be Bt1.45bn, down 18% YoY (and 8% QoQ), led by a YoY drop (but a QoQ rise) in service income (excl. IC) and YoY expense rises—network OPEX, depreciation and amortization, general administrative and interest—which will outweigh shallower loss on handset sales. We expect shallower handset gross loss and margin (-3% in 4Q15 against
-19% in 3Q15 and -4% in 4Q14) due to a reduced prepaid handset subsidy. Service revenue (excl. IC) will drop 1% YoY but rise 2% QoQ. Net subscriber additions will reverse to a positive of 350k in 4Q15.
