True Corporation

True Corporation Plc (TRUE)

Investment thesis: We reiterate our HOLD rating on TRUE, due to lingering concerns over the future of the Hutch contracts with CAT and what that might possibly mean for TRUE Move-H. We expect the consolidated bottom-line to post a net loss for FY13, given heavy CAPEX requirements for 2.1GHz-3G licenses.
Deeper core loss expected for 2Q12: We estimate a Bt1.77bn net loss for 2Q12, deeper into the red by 3% YoY and 289% QoQ. The core loss would be Bt1.47bn, or 44% YoY and 42% QoQ deeper in the red. The expected YoY core operational deterioration is because OPEX rose faster than consolidated revenues. The QoQ core loss increase is due to seasonality and higher OPEX. Marketing expenses expanded to support: 1) marketing for TRUE Move-H and 2) TRUE Online’s high-speed Internet expansion to another 38 provinces.
Strong 2Q12 group revenue: The top-line should post a rise of 18% YoY, led by TRUE Move-H and TRUE Online subscribership growth. TRUE Visions’ service revenue was probably flattish YoY. Consolidated EBIT is estimated at Bt627m, down 56% YoY and 11% QoQ, due to a jump in OPEX. TRUE Move-H had built out 7,000 “cell sites” as of end-July (up from 6,000 in early May), while its 3G subscribership increased to 2m. All three business units—TRUE Online, TRUE Visions and TRUE Mobile—are likely to post 2Q12 EBITDA declines. 
Guidance—TRUE Move-H won’t break even till 1H13: Management said that TRUE Move-H remains committed to it YE12 subscriber target of 4m, despite its ongoing argument with CAT over the legality of the TRUE-Hutch contracts. CAT is apparently in the process of drafting contract amendments. Management now guides that TRUE Move-H will break even in 1H13 rather than 4Q12, due to heavier 3G CAPEX requirements. We anticipate an FY13 consolidated net loss, given CAPEX needs for 2.1GHz 3G licenses and network rollout.
FY12-13 core loss to be revised deeper: We will revise our FY12-13 core loss forecasts deeper after the TRUE releases its 2Q12 results. We now expect a worse 1H12 core loss and heavier FY13 CAPEX than we did previously.