Total Access Communication
Surprise! Interim DPS of Bt16 BUY (maintained) Target Price: Bt105.00 Price (15/12/11): Bt81.50
Total Access Communication Plc (DTAC)
What’s new? On Dec 15, the DTAC board approved an interim DPS of Bt16.46 (Bt38.97bn in total) to be paid from retained earnings (including 9M11 net earnings). XD on Dec 29, 2011; payment is scheduled for Jan 12, 2012. Moreover, the firm approved Bt30bn in new credit with a local financial institution—a Bt20bn term loan with the remainder being a revolving loan facility.
Analysis: The interim DPS of Bt16.46—which includes an estimated Bt11.50/share special dividend—positively surprised us. Our interim DPS estimate range was Bt9-10. Assuming an FY11 DPS of Bt17.38 (including 4Q11 profit), the FY11 dividend yield would be a very generous 21%. However, in the absence of a special dividend payout for next year, we estimate an FY12 DPS of only Bt4.72, a yield of about 6% (assuming a 100% payout ratio).
We have factored in additional interest expenses of Bt1-1.5bn/annum, starting FY12, assuming a 5% mean funding cost for the Bt30bn in new credit. Hence, we have cut our FY12 earnings forecast by 8% to reflect anticipation of higher interest expenses. The drawdown of the Bt30bn will reverse DTYAC’s position from a net cash/EBITDA ratio of 0.12x to a net debt/EBITDA ratio of 0.60x in FY12, which would still be far below its 1x net debt/EBITDA policy ceiling. The debt/equity ratio at YE12 will rise to 0.9x (from 0.1x previously), we expect.
Management clarified during the conference call that there isn’t a debt covenant tied to Bt30bn in credit restricting the size of the dividend payout. DTAC maintains a dividend policy of not less than 50% and we believe it can pay out a ratio exceeding 100%, starting FY12. However, we conservatively assume a 100% dividend payout ratio, starting FY12.
Action: The stock price will react positively in response to higher-than-expected interim dividend payout. Note that we have upgraded our DCF-derived YE12 target price by 5% to Bt105 to reflect the net positive impact, offset between lower WACC (due to a higher debt-to-capital ratio) and higher net debt (due to new borrowings). Our BUY rating stands, premised on 3G progress in FY12.
