Total Access Communication

Total Access Communication Plc (DTAC)

Q4 2012 profit’s growth projected to return due to acceleration on marketing seasonal benefits

The number of net new additions in 4Q12 is projected to leap from the prior
quarter to 500,000 units due to seasonal benefits and the acceleration on
marketing which is the new prepaid package (SIM15/16) that targets on
teenagers in order to compensate the negative image that is a result of the
network failure during the first 9 months. Accordingly, the average revenue per
user (ARPU) is projected to drop only slightly, so the service revenue is believed
to still grow well by 2.4% QoQ. Combined with the phone sales revenue that is
projected to rise by 80% QoQ due to iPhone 5 sales since December 2012, the
sales and service revenue is projected to grow by 8.7% QoQ. Moreover, the cost
of service has risen only by 1.0% QoQ due mainly to the network cost that has
increased along with the expansion of 3G (850 MHz) network stations by 1,500
units in 4Q12 to 5,000 units. However, this is projected to be partially offset due
to the selling and administrative expenses that have increased by 10% QoQ
which is mainly a result of the marketing expense, extra bonus payment, and the
salary that is revised up to be close to those of leading Thai companies.
Accordingly, the net profit is projected to grow by 7.6% QoQ to B3.1bn, bringing
about B11.8bn of FY2012 net profit (stabilizing YoY) which is lower than our
FY2012 forecast by only 1.7%.


2013 earnings result tends to quicken up outstandingly in every quarter

As DTAC would recognize the expense from paying the auction fee of 3G (2.1
GHz) license after starting the service in 2Q13 onward, the earnings result in
1Q13 is projected to grow continuously along with the seasonal benefits and
iPhone 5 sales. For 2Q13 (when 3G service with spectrum of 2.1 GHz would
begin), the non-voice service revenue and volume are projected to increase
constantly since 3G service would be a lot more efficient than present.
Furthermore, the company’s cost is likely to decline due to the decrease of
service revenue sharing under 30% concession contract that has lowered to
around 10-15% (license cost included). This is under an assumption that DTAC
would gradually migrate its first-class customer database to the new 3G service
by 10% of this year’s total subscribers. In 2013, the company’s net profit is
projected to return to grow once again by 18% YoY to stand at B14bn.

Highest growth among peers. 27% upside from current share price

Despite yesterday’s pressure toward the ICT sector from the appeal that has
been filed by the Ombudsman to consider the Administrative Court which had
rejected the appeal against 3G auction, we believe that the weakness of share
price is a good chance to accumulate. There’s an unlikely possibility that the
Supreme Administrative Court would accept the appeal due to the following
reasons of the Administrative Court. 1) The NBTC isn’t part of the government
sector; therefore, the Ombudsman possesses no rights to file an appeal. 2) The
Ombudsman isn’t the one facing damage from 3G auction. Moreover, the
damage to the society is just a prediction and has yet to occur. In terms of 2013
profit tendency, it is projected to grow highest among mobile service
entrepreneurs. The current share price has 27.5% upside from the fair value.
Furthermore, there’re low risks for DTAC in the worst case scenario since the fair
value that hasn’t included 3G license still stands at a high level of B90.
Accordingly, we reiterate our recommendation of “BUY”, choosing DTAC as a top
pick of the ICT sector. In addition, the company is projected to announce 4Q12
dividend yield payment at around B1.17/share or 1.4% after the announcement
of 4Q12 financial result.