Advanced Info Service

Advanced Info Service Plc (ADVANC)

Popularity of non-voice service increases, boosting net profit by 16% QoQ
In 1Q13, although ADVANC still had provided 3G service under 900 MHz (2G) spectrum
before officially starting 3G service under the new license of 2.1 GHz spectrum as the
first provider around April – May 2013, the popularity of smart phones would still help
boost the non-voice service revenue continuously. Combined with seasonal benefits,
the average revenue per user (ARPU) in 1Q13 would stabilize at a high level from
4Q12. For the new customer base, it is still estimated at the same level like that of the
past 3-4 quarters with 675,000 users approximately. Accordingly, the service income in
1Q13 would be urged to grow by 2.6% QoQ. Nevertheless, the revenue from phone
sales is projected to decrease by 25% QoQ because popularity of the new iPhone has
lessened after an introduction in November 2012. Overall, ADVANC’s 1Q13 total income
is projected to sink by 2% QoQ to B37bn. Although the revenue from phone sales has
decreased, the margin of these phone sales is substantially lower than the service
income. Accordingly, even the company has to fully recognize the amortization of the
new 2.1GHz license for the 1st quarter, the gross profit margin is projected to increase
from 38.8% in 4Q12 to 40.5%. Other than that, the selling and administrative
expenses tend to decline by 13.5% QoQ due to the advertising cost lower than that of
4Q12. Accordingly, ADVANC’s 1Q13 net profit is projected to grow outstandingly by
16% QoQ to B9.8bn.
First 3G service provider this April-May, projected to boost profit since 3Q13
ADVANC would officially start providing the new 3G service under the license of 2.1
GHz spectrum during April – May 2013, aiming to immediately transfer its 2G
customers to the new license after the very beginning of the provision. Accordingly, we
project that the company would benefit from this new license since 2Q13 onward. The
income base from transferred customers is projected to grow at a higher rate because
3G service is much more efficient than 2G in terms of data service. Furthermore,
ADVANC is also projected to benefit from the revenue sharing that is likely to decrease
to 5.75% from 25% of the revenue. Though 2Q13 profit base might weaken slightly
because it’s only the beginning customer transfer process and is also the period toward
low season, the company’s profit is projected to accelerate since 3Q12 onward when
the proportion of customers transferred to the new license gradually increases.
ADVANC aims to transfer around 25-30% of customers to the new 3G license within
end-2013, increasing at a higher rate in years ahead. Accordingly, we’re convinced that
the company’s 2013 net profit would grow as estimated by 13% from the prior year to
B39bn, rising continuously by 17% in the following year.
Upside left at only 6.4%. Recommend switching to INTUCH
(FV@B98)
We believe that the 3G service provision under the new license would drive ADVANC to
grow continuously in a long term. With solid financial base, the company is projected to
be able to constantly pay the dividend yield at 100% of the net profit although it’s
currently in high CAPEX cycle. Nevertheless, the share price has increased by 13.5% in
the past 1 month to respond with the clear schedule to start 3G service provision,
resulting in only 6.4% upside left. We downgrade our recommendation from “BUY” to
“HOLD”, switching to INTUCH with 21.7% upside instead because its share price is still
laggard compared with subsidiary’s.