True Corporation
3G finally in the price - downgrade to Neutral
True Corporation Plc (TRUE)
Rough 3G-850MHz? Never mind, 3G-2.1GHz is just about here. With less support from CAT Telecom, TRUE’s key partner for its 3G-850 MHz business, the 3G-850 MHz rollout is falling behind, with currently ~7K base stations, just half the year’s goal of 13.5K. We see a chance that TRUE will revise down its 3G-850 MHz plan and shift its focus to the soon-coming 3G-2.1 GHz license auction in October. TRUE will then still enjoy a chance to expand 3G nationwide to capture the rising data demand and the potential to cut regulatory cost per unit from current concession terms.
Amend 3G assumptions, extend 3G payments. We revise our 3G assumptions as follows: 1) move Bt6bn capex to 2013, which reduces 2012F capex from Bt23bn to Bt17bn, and reallocate some 3G-850MHz capex to 3G-2.1 GHz; 2) extend the 3G-2.1 GHz auction payments from our previous conservative assumption of a lump sum payment of Bt15bn in late-2012 to three payments (50%, 25%, 25%) over 2013-2015F (based on the 3G Information Memorandum), 3) revise the 1800 MHz auction assumption from a lump sum payment of Bt12.5bn in 2013F to three payments over 2013-2015F, using the NBTC’s 2.1 GHz terms; its 1800 MHz auction rule is expected to be finalized in 1H13.
Upgrade 2012-2013F. We are revising up 2012F to a loss of Bt4.7bn and 2013F to a loss of Bt3.1bn from losses of Bt5.6bn and Bt.4.8bn respectively after we: 1) reduce debt following the extension of 3G payments and 2) reduce the wholesale cost of 3G-850MHz service, which is linked directly to the capacity that we revised down. Our 2012F gearing ratio is revised to 4.5x from 6.1x and 2013F to 6.9x from 9.4x.
3G benefits finally priced in, downgrade to Neutral despite new TP of Bt5.8.
With these revisions, we are revising up our mid-2013 TP to Bt5.8 from Bt5.0 based on DCF (WACC 10.6%, terminal growth 1%). TRUE share price has risen by 27% so far this month to the point where the benefits it receives from 3G and speculation on a new strategic partner after getting the 3G-2.1 GHz license are priced in. We thus downgrade our rating to Neutral from Buy despite the TP upgrade.
