Total Access Communication

Total Access Communication Plc (DTAC)

Q2 2012A: earnings slid 7% YoY mainly from higher concession portion. Q2 2012A profits were in line with estimates, with net profit declining 7% YoY to Bt2.8bn due to: 1) the rise in concession revenue sharing from 25% to 30% since Sep 2011 and 2) the Bt172mn rise in network OPEX as it added to its 3G network that overwhelmed the 8% YoY growth in core service revenue with non-voice as key driver (+51% YoY to Bt3.57bn). In addition, there was a negative trend in voice revenue, which fell 1% YoY, mainly from churn after its network quality issue: there were only 167K net subscriber additions in Q2 2012 (vs. 218K the previous quarter). Based on the conference call yesterday, both cost and churn began to show slow improvement in June and management expects another quarter of slow movement before significant improvement in Q4 2012F.
Announce Bt2.27 interim DPS with new dividend policy. DTAC surprised by announcing an interim DPS of Bt2.27 (2.85% yield, XD Aug 1 and payment Aug 22). This implies a 100% payout of its 1st half 2012A company-only EPS. DTAC also announced a new dividend policy of a payout ratio of at least 80% (even after the 3G-2.1GHz auction) with quarterly dividends. We currently assume 100% payout, which will keep D/E below 1x and net-debt-to-EBITDA at only 1.03x in 2013F vs. its cap of 2x.
New shareholding structure to ease nominee issue. On July 20, there was a restructure of the upper layers of DTAC’s shareholders. The group of companies under investigation with regards to the foreign nominee issue were replaced by multi-layer holding companies owned by Telenor group and the Bencharongkul family (Figure 9). Thai law defines a firm’s nationality by considering only the first layer of shareholders. This means that although Telenor’s effective holding in DTAC is 62%, only 42.6% is held directly by Telenor in the new shareholding structure, small enough to ensure DTAC meets the criteria as a Thai company. We believe this change has eased concerns about the nominee issue and confirms Telenor’s commitment to Thailand and DTAC’s serious preparation for the upcoming 3G-2.1Ghz auction.
Maintain Buy (with Bt100 TP) as key beneficiary from new 3G license. YTD, DTAC’s share has underperformed peers, gaining 15% vs. ADVANC’s +42% and TRUE’s +31%. We believe the key reasons for this are the recent network problem and market concern about its foreign holding. As these issues are now subsiding in importance, the market will be able to switch focus to the upcoming 3G-2.1Ghz auction in Oct 2012F, particularly since DTAC is expected to benefit the most in terms of regulatory cost savings per unit as it is currently paying the highest regulatory cost per unit. We maintain Buy and a mid-2013 TP of Bt100 (DCF, WACC 9.3%, terminal growth 1%)