Total Access Communication

Total Access Communication Plc (DTAC)
 
Higher network cost depresses 2Q12’s net profit 5% below projection
Sales and service revenue in 2Q12 has decreased by 4.3%qoq, slightly more
than projected. The decline occurred mainly because lower confidence of
customers toward the service after the network failure in the end of last year
has suppressed the growth of net additions to only 0.7%qoq or 160,000
units. At the same time, ARPU has stabilized from the prior quarter as
contracting income from voice service as a result of seasonal effect has been
compensated by continuously growing income from non-voice service in
2Q12. However, due to a significant fall in mobile phone sales from a fierce
competition and hiking expenses from network installation, increasing
network stations from 3G service expansion, and network equipment change
nationwide, gross margin in 2Q12 was depressed by 1.4%qoq. Nevertheless,
it was partially compensated by a 3.7%qoq decrease in selling and
administrative expense and a FX gain of B42m, so net profit in 2Q12 has weakened only 5.7%qoq to B2.8bn, slightly lower than expected.

Voice income recovers, non-voice income grows continuously, making full year profit stabilize
Net additions are projected to grow highly again in 3Q12 after an adverse
impact from bad image after the network failure in the end of last year has
receded. Moreover, the company is confident that its plan to encourage voice
service will help recover revenue from the service since 3Q12 onward.
Meanwhile, non-voice revenue is projected to grow remarkably due to a
support from popularity of smartphone, so net profit in 3Q12 would be a little
better than 2Q12. At the same time, effective cost control from a network
swap will be apparent when the swap is complete almost throughout the
country since 4Q12 onward. In addition, service revenue in 4Q12 tends to
grow notably due to benefits from a festive season and tourist season during
the year end, so we believe DTAC would make a record high profit during the
quarter. Accordingly, profit for FY2012 would stay flat from FY2011 at B12bn
despite an impact from an increase of revenue sharing to CAT from 25% to
30% for a full year in 2012. Subsequently, we believe net profit in 2013
would reverse to grow again by 18%yoy as a result of benefit from a
decrease of revenue sharing to CAT from 30% at present to 10-12% for 3G
service under the new license of which the bidding will start in October and
the service provision will start next year.
Share price already absorbs positive factor. Hold
With full year earnings that are projected to stabilize from the prior year and
share price which has risen to reflect good news from the new license until
having limited upside, we reiterate only “hold to receive dividend in 1H12” for
DTAC (dividend yield is 2.9% p.a., going XD on 1 August 2012). The stock
also has a chance to rise further from a benefit from a new 3G license.
weakened only 5.7%qoq to B2.8bn, slightly lower than expected.