TRUE Corporation

TRUE Corporation Plc (TRUE)
Increasing advertisement cost causes B3.1bn loss in 2Q13
From the analyst meeting, TRUE's 2Q13 total net loss was concluded at B3.1bn,
nearly increasing 3x from 1Q13 mainly due to B550m total loss caused by Fx loss
(B2.6bn norm loss, rising 33%qoq due to high advertisement cost to boast quality
of services, and marketing cost on all business rising 30.4%qoq). Earnings results
from TRUE's businesses are as follows: 1) TRUE Mobile – norm loss rising 28%qoq
due to increasing advertisement expense to compete against rivals which had
launched 3G service; service revenue stayed unchanged qoq as it was low season,
2) TRUE Online – norm profit stayed unchanged qoq; 1.8%qoq income rose from
client base growth but negated by increasing advertisement expense as service
area expanded, 3) TRUE Vision – norm loss rising B71m from 1Q13 with
unchanged qoq income (falling membership income, gaining advertisement
income) due to advertisement expense of new programs replacing Premier League.

Loss projected for remainder of year to next year
TRUE’s loss would fall in 2H13. 3Q13 service income would improve from the
lowest (2Q13), making a solid growth in the operational season (4Q13). 3Q13-
4Q13 operational cost is projected to stay unchanged from 2Q13 as TRUE had
established 850 MHz frequency wave (3G network) to be available in all area.
However, 1H13 loss was equal to our FY2013 earnings forecast. We revised down
the forecast. Under new forecast, TRUE's FY2013 total loss would be B7.7bn and
falling by 75% next year. However, this forecast has not included risk from
provision for asset impairment of 1800 MHz wave (2G network) concession with
remaining amortization cost of B7.5bn, though TRUE will be able to provide 2G
network only until September 2014 (the concession ends in September 2013, but
NBTC has expanded the concession by 1 year for TRUE to transfer another 18
million clients to 3G system, and auction will take place next year). However,
TRUE's executive confirmed no need to record the impairment at the present, as
TRUE is sure that they will win the auction for 1800 MHz network next year to
resume operation by those assets.

Infrastructure funds needed to support shareholders from risk
Conservatively, we project that NBTC would delay 1800 MHz network auction, as
previously done. Thus, TRUE is at high risk for setting provision for asset
impairment (prepared network without frequency wave is useless). If TRUE has to
recognize whole expense and face continuous loss until 2014, shareholders equity
would be minus in 2014 and TRUE will need to revive the businesses immediately.
We project that TRUE need to establish infrastructure fund in this year or early
next year to recognize extraordinary income from the establishment to support
shareholders equity. In worst-case scenario, if TRUE cannot establish infrastructure
fund in time, TRUE may need to raise fund.
To reflect the risk, we revise down fair value (DCF) from B4.80 to B4.25, cutting
B0.55/share for impairment of assets under 1800 MHz concession. Infrastructure
fund establishment is not included (adding B6.2/share in case of best-case
scenario, making B10.4 fair value, read 24 July Equity Talk and 26 July News Plus).
However, the funds might be protested. TRUE will sell an antenna under 1800 MHz
wave concession, while TRUE has ownership conflict with CAT. Thus, we have not
included this added value. If this antenna cannot be sold, added value from funds
preliminarily projected at B4.5 would boost funds fair value to B8.75 (excluding
sale of the antenna). We reiterate "BUY" due to limited upside.