Advanced Info Service

Advanced Info Service Plc (ADVANC)

3Q12F: Expect outstanding YoY earnings growth of 33%. ADVANC is expected to
post impressive earnings growth yet again, of 33% YoY to Bt8.7bn in 2Q12F. Key drivers:
1) estimated 30% YoY growth in non-voice revenue to Bt6.6bn from the growing
popularity of mobile internet services, 2) estimated 6% YoY core voice growth to
Bt18.7bn thanks to its large network coverage enabling it to capture demand
upcountry and 3) the cut in corporate tax to 23% from 30%. The growth came despite
an estimated rise of 11% YoY in SG&A to Bt3.17bn from the ~Bt300mn special
employee reward, which it has given in the third quarter for three consecutive years.

Large benefits from upcoming 3G-2.1 GHz auction. The NBTC scheduled the 3G-
2.1 GHz auction for Oct 16 and will announce the winners by Oct 19. Applicants have
until September 28 to submit application documents, the Bt500K application fee and a
Bt1.35bn deposit guarantee per applicant. The names of qualified bidders are expected
be announced on Oct 9. ADVANC is expected to win one license (assuming Bt15bn
auction fee for 15 MHz spectrum) and to launch 3G-2.1 GHz service by 2Q13. Benefits
will be high: 1) lower regulatory cost per unit from current concession revenue sharing
of 25% (average) to ~6% total license fee, 2) opportunity to expand wireless broadband
service via a full-scale 3G network and 3) the removal of business continuity risk after
concession ends.

But all benefits seem discounted already, maintain Neutral. Although we like
ADVANC in both the ST from the outstanding earnings growth and the LT from the big
benefits from the 3G license, these in our view are in the price. ADVANC share price has
risen 52% YTD while its 2013 EV/EBITDA of 10.2x is currently the highest among peers
(DTAC’s is 8.4x and TRUE’s 8.4x). Therefore, we maintain a Neutral rating with a mid-
2013 DCF derived TP of Bt225 (WACC 9.6%, terminal growth 1%).