Advanced Info Service

Advanced Info Service Plc (ADVANC)

2Q13 norm profit declines as projected due to seasonal effect and new 3G
ADVANC reported 2Q13 net profit at B9.2bn, dropping 7.3%qoq. Excluding a Fx
loss of B154m, versus a Fx gain in 1Q13, the norm profit in 2Q13 was B9.35m,
decreasing 7.1%qoq, close to our projection. 2Q13 was a low season, while the
new 3G service under 2.1 GHz spectrum has just started for 2 months, so benefits
of the better service provision technology (compared with the previous 900 MHz-
2G) on the data service income were not solid in this quarter. As a result, ARPU
dropped 3.9%qoq. However, compensated by a 1.4%qoq increase in net additions
in 2Q13, the service income contracted only 1.2%qoq. Earnings in 2Q13 were also
affected by a 1.4%qoq rise in cost of service and operating expense after ADVANC
started realizing the amortization for the new 3G service and an increase in
marketing expense for the new 3G service introduction, which were greater than
an advantage from lower income sharing under the new license (5.25%, comparing
to 25% under the 2G license) because the company has still been in early days of
customer migration. At end-2Q13, net additions of the new 3G service were 3.9
million (10.5% of the total subscribers).
while the current fair value has 11% upside and dividend yield can be expected at
4.9%. We reiterate BUY. However, we select INTUCH(FV@B122, holding 40.45%
stake in ADVANC) as a top pick because it has got an indirect returns from
ADVANC and its current upside is the highest among peers at 34%. ADVANC’s
1H13 dividend is B6.4/share. XD date is on 16 August 2013.
- 2.1 GHz-3G service will benefit profit base since 3Q13
We project the profit to revive again in 2H13 from the customer migration
efficiency that would increase from 40,000 units per day to 300,000 after the
NBTC’s approval of an increase in the service capacity took effect since 1 July.
Accordingly, ADVANC revised up its target for new 3G subscribers at end-2013
from 8-10 million to 10-12 million units. New 3G net additions in 3Q13 and 4Q13
would grow significantly, resulting in 1) lower income sharing under the new
license and 2) higher data service income from the new technology. Despite a
conservative assumption that ADVANC would be able to migrate 7.7 million
subscribers to the new 3G service by the end of this year (20% of current
subscribers), we still maintain our forecast because the benefit from the betterthan-
expected subscriber migration would be offset by the marketing expense and
amortization expense that would increase following ADVANC’s higher subscriber
base target. Marketing expense would rise from 2.5% of the income to 3-3.5% as
a result of a subscriber migration promotion. Moreover, the company would
accelerate its network installation to keep its signal quality, with a goal to cover
every province of Thailand by the end of this month. Under the current forecast,
we project the net profit to grow 20%yoy to B41bn in FY2013, and 21% in 2014.
- Current share price still has upside. Div yield is 15.9%. BUY
New 3G license is anticipated to generate continuous growth for the company,
while the current fair value has 11% upside and dividend yield can be expected at
4.9%. We reiterate BUY. However, we select INTUCH(FV@B122, holding 40.45%
stake in ADVANC) as a top pick because it has got an indirect returns from
ADVANC and its current upside is the highest among peers at 34%. ADVANC’s
1H13 dividend is B6.4/share. XD date is on 16 August 2013.