True Corporation

True Corporation Plc (TRUE)
Above-estimate core loss: TRUE reported a Bt456m net loss for 1Q12 (against a Bt11.3bn net profit in 1Q11 and a Bt10.4bn net loss in 4Q11). Note that the firm restated a Bt12.1bn one-time gain booked in 4Q11 from a Hutch asset revaluation to 1Q11 and amortized an additional Bt1bn in Hutch assets per annum, effective FY11. Stripping out a Bt568m FX gain, the core loss was Bt1bn, 56% YoY deeper but 58% QoQ shallower. The net loss was 49% shallower than modeled, thanks to a bigger FX gain than expected (Bt568m versus Bt330m). The core loss was 16% shallower than anticipated, due to lower SG&A and tax expenses than assumed.
Results highlights: The core loss was shallower QoQ because of better group revenue, lower seasonal OPEX spending (and no flood-related expenses) and substantially lower tax expenses. The deeper YoY core loss was due to heavier service costs and SG&A related to TRUE Move-H—advertising, marketing and network amortization expenses—in support of 3G services.
TRUE Mobile and TRUE Visions both reported YoY core operational deterioration. TRUE Mobile’s core loss was 23% YoY deeper—TRUE Move’s core loss was dived another 156% YoY; the TRUE Move-H/Hutch core loss was flat YoY at a Bt856m. TRUE Visions posted a core loss against a core profit for 1Q11. TRUE Online’s core profit inched up 1% YoY.
Outlook: We expect a deeper YoY core loss in 2Q12 and a deeper net loss in 2H12—higher marketing spend in support of TRUE Move-H and rising network OPEX with the buildout of the TRUE Move-H network (a YE12 target of 12,000 base station sites, up from 5,000 currently). Management guides for 4m TRUE Move-H subscribers by YE12, so FY12 CAPEX will probably expand to Bt20-25bn. We expect TRUE Visions’ core operations to deteriorate further with increased churn among low-end subscribers (due to intense competition from satellite TV operators).
What’s changed? We maintain our FY12 net loss forecast unchanged, despite the fact that the 1Q12 loss was shallower than modeled.  
Recommendation: Our HOLD rating stands.