Total Access Communication

Total Access Communication Plc (DTAC)

Investment thesis: We advise looking past the 4Q11-FY12 earnings deterioration (due to compensation for three network service interruptions, higher revenue-sharing obligations to CAT and a one-off deferred tax provision). The real story is that DTAC has the greatest scope for bottom-line upside with an NBTC-issued 3G license of any telco in Thailand. Its post-Bt16.46 special DPS stock price presents a good opportunity to accumulate in anticipation of a series of 3G developments over the next nine months, which will pump its share price further. Our BUY rating stands, premised on 47% upside to our valuation once the firm wins a 3G license and a good dividend yield of 7%. 
Estimate a 4Q11 core earnings tumble: We estimate a Bt2.2bn net profit for 4Q11, down by 25% YoY and 28% QoQ. The firm will post a one-off non-cash item for the quarter—a Bt280m deferred tax expense provision (because the headline corporate tax rate drops from 30% to 23% this year and to 20% in FY13). Excluding the extra item, we model for a 4Q11 core earnings drop of 16% YoY and 19% QoQ. The core earnings deterioration is attributable to: 1) a full-quarter of the 5% rise in revenue-sharing obligations to CAT (effective Sept 16, 2011) and 2) recognition of Bt300m in compensation for the Dec 21, 2011 service interruption.
FY11 net profit estimate cut: We have trimmed our FY11 earnings projection by 3% to Bt11.63bn to factor in the one-off Bt280m deferred tax expense provision in 4Q11.
Three service interruptions—a short-term negative: DTAC was subject to three network service interruptions within three weeks—Dec 21, Jan 5 and Jan 8. After the first two interruptions, the firm announced that it had suspended its network upgrade. The upgrade will resume once DTAC is confident in the compatibility of newly-installed equipment with the existing network. We estimate Bt300m in compensation for the first incident (a 14% hit on the 4Q11 bottom-line) and Bt70-90m altogether in compensation for the second and third incidents (which will squeeze 1Q12 earnings by 3-4%).
Outlook  
4Q11 core earnings tumble: We estimate a Bt2.2bn net profit for 4Q11, down by 25% YoY and 28% QoQ. There was one-off non-cash item in the quarter—a Bt280m deferred tax expense provision (because the headline corporate tax rate drops from 30% to 23% this year and to 20% in FY13). The provision is likely to be higher than the Bt244m guided for in DTAC’s footnotes to its 3Q11 financial statements because that number was calculated from the three-year impact of the corporate tax cut. Because it is a non-cash item, the provision doesn’t affect either cash flows or our DCF valuation.