Total Access Communication

Total Access Communication (DTAC)

2Q13 normal profit is expected to fall slightly despite recognizing 3G costs
Signal quality significantly improved after nationwide network upgrade in the
second half of 2013. This is considered a positive factor, continually boosting
client base. It is predicted that there will be 300 thousand net addition, or 1.1%
qoq growth, in 2Q13, while ARPU is likely to stay unchanged from 1Q13.
Accordingly, service revenue is predicted to rise by 1.2% qoq, while phone sales
revenue is likely to stay flat from 1Q13. Thus, sales revenue and service revenue
is anticipated to grow by just 0.6% qoq. Costs and operation expenses are
estimated to increase in a slightly higher rate than revenues, as the company
recognized expenses related to new 2.1 GHz 3G network that will be available
from 23 July on e.g. advertisement expense and rental area to install 3G
devices. Therefore, 2Q13 normal profit is predicted at
3.3bn, weaker by 4%
qoq. DTAC needs to recognize 2Q13 FX loss by approximately
80m, so 2Q13 net
profit is predicted at
3.23bn, with 6.7% qoq from as DTAC recognized
426m
extraordinary expense in 1Q13 mainly due to cancellation of ineffective IT
system.
- Clients migration to 3G starts on July, predicted to boost profit continually from 3Q13
After activating new 3G service from 23 July, though DTAC has to recognize the
higher cost for the amortization of new 2.1 GHz 3G license and the depreciation
fee of the network for the first quarter, DTAC is predicted to gain more benefits
from 1) client base using more data service as the network is better, making
ARPU likely to rise more, 2) Migration of clients from the network under the
former concession to 3G network decreases revenue share cost as cost of
revenue sharing to 5.25% from 30%. We estimate that, in 3Q13, DTAC would be
able to migrate at least 2 million clients from 2G to 3G network (7.5% of total
client base). 3Q13 net profit is likely to grow from 2Q13 slightly, while 4Q13
profit is predicted to grow from 3Q13 under our consumption that DTAC’s 3G
client base will rise to 20% of total client base at the end of the year (5.6 million
clients). Overall, 2013 profit is predicted to rise by 23% yoy to
13.8bn and 31%
in 2014 from 3G client base that will increase to 40% of total clients.
- Bright future with upside and div yield of 25.4% and 4.7%
With promising growth from new 3G license benefit, and the fair value based on
DCF (WACC 9.7%, terminal growth 0.5%), with 25.4% upside and dividend yield
predicted at 4.7%/year, We reiterate “Buy”