Advanced Info Service

Advanced Info Service Plc 

Advanced Info Service Plc (ADVANC)

Q2 2013 profit projected to shrink slightly from 1Q13, though recognizing new 3G expense
ADVANC has started providing new 3G service under 2.1 GHz license since May
2013, clearly enhancing data service, both for former 900 MHz 2G, which usage
density has dropped after some clients were migrated to new 2.1 GHz frequency,
and for 2.1 GHz 3G that significantly grants more efficient data service than the
former. Data service revenue is projected to grow implicitly that it can
compensate for voice service revenue that dropped due to low season. 2Q13’s
monthly ARPU is projected close to 1Q13. Client base is projected to rise by
650,000 units, or 1.8% qoq, so service revenue is projected to stabilize from
1Q13. However, ADVANC's earnings result in this quarter has been affected by
operation cost and expenses that are projected to rise by 2.0% qoq due to
recognition of new 3G amortization expense and marketing expenses that has
risen implicitly since the opening of new 3G. The revenue sharing would drop
from 25% of total revenue under the 2G concession to 5.25% of total revenue
under the new 3G concession. However, the benefit from the decrease in revenue
sharing was still insignificant as ADVANC has just migrated clients in mid-May, so
there are only 2.6 million new 3G clients at the end of 2Q13, or 6.5% of total
client base. Overall, 2Q13 net profit is projected at B9.4bn, shrinking slightly by
5.2% qoq.
- New 3G to benefit profit base from 3Q13 on
ADVANC profit has signaled to grow significantly from 3Q13 on because of
enhancement in migration efficiency of client base. NBTC has unlocked limit of
client migration between networks, from 40,000 clients to 300,000 clients per
day, starting from 1 July. Thus, at least 6 million clients are projected to be
migrated to ADVANC's new 3G service in 3Q13. Benefits are as follows: 1) Data
service revenue can grow implicitly from 2Q13 as 2.1 GHz frequency is most
compatible with for 3G service for its speed and stability in data service. 2) Cost
of revenue sharing is projected to have a solid decline after new 3G client base
has doubled. Profit is likely to grow continuously in 4Q13 from migration of new
3G clients that has increased continuously, along with high season. According to
our conservative assumption, if ADVANC can migrate 7.7 million new 3G clients or
20% of total client base at the end of the year, its net profit is projected to grow
by 20% yoy to B41bn, and grow further by 21% in 2014, as new 3G clients is
predicted to reach 40%.
- Current stock price has high upside, 13.5% dividend, reiterate "BUY"
According to the growth from new 3G license, FV based on DCF (WACC 9%,
According to the growth from new 3G license, FV based on DCF (WACC 9%,
terminal growth 0.5%) with 8.6% upside, and dividend yield expected at 4.9%,
we reiterate "BUY" for ADVANC. However, we still select INTUCH(FV@B122), the
parent company of ADVANC (holding 40.45% share), as a top pick for indirect
yield from ADVANC, while the current share price has 43% upside.