Total Access Communication

Total Access Communication Plc (DTAC)

In line with estimate: DTAC reported a Bt2.83bn net profit for 2Q12, down by 7% YoY and 6% QoQ. Stripping out FX, core earnings would be Bt2.79bn, down 8% both YoY and QoQ. The net profit was in line with our Bt2.9bn estimate. DTAC also announced a surprise Bt2.27 DPS for 1H12 (a 92% payout ratio and a 3% dividend yield).
Results highlights: The YoY slippage was due to rises in: 1) revenue-sharing (from 25% to 30%), effective Sept 2011, 2) network OPEX related to 3G-850MHz expansion and 3) interest expenses on new loans that financed capital restructuring in Jan 2012.
Service revenue (excl. IC) grew by 8% YoY and was flat QoQ (no evidence of seasonality), led by nonvoice receipts (up by 51% YoY and 7% QoQ). Voice revenue dipped by 1% YoY and 3% QoQ on network quality problems and seasonality. Net adds fell sharply, due to the network quality issues. Other OPEX, such marketing expenses, fell on lower marketing spend, while general administrative expenses declined because labor costs were capitalized in the quarter.
Outlook: DTAC completed the network swap (upgrade) in Bangkok and southern Thailand in 2Q12; it targets nationwide completion by YE12. Given better network quality in 2H12 and heavier voice promotions—a new pre-paid voice promotion in July and two post-paid voice promotions in April—we expect net adds and voice revenue to rebound during the next six months. DTAC will announce the details of a cost efficiency program in 3Q12, which will bear fruit in FY13.
The firm revised its dividend payout policy from "50%" to "not less than 80%" of consolidated net profit with the stated aim of paying a quarterly dividend. DTAC intends a payout ratio of up to 100% in the future, even with 3G-2.1GHz CAPEX. The number of 3G-850MHz base stations is targeted at 5,000, up from 2,200 in 2Q12. Management expects 3G auctioning to start in mid Oct.
What’s changed? The 1H12 net profit represents 48% of our FY12 forecast, which we maintain unchanged.
Recommendation: Our BUY rating stands. DTAC is our 3G laggard play.