Advanced Info Service

Advanced Info Service Plc (ADVANC)
- 3G investment and decelerating purchasing power put 3Q13 below expectation
ADVANC's 3Q13 net profit was B8.3bn, falling by 9.3%qoq and 4.3%yoy, 9.2% lower
than expected. Excluding B227m extraordinary expenses (B193m from asset
impairment, B34m from Fx loss), normalized profit was B8.6bn, falling 8.3%qoq, still
lower than expected. This is mainly because domestic purchasing power declined,
pressing 3Q13 service income (excluding IC) by 1%qoq (lower than projected to stay
unchanged qoq). Moreover, advertisement expense and aggressive investment on
new 3G network was higher than expected while there was also one-month employee
bonus. Thus, cost of service and administration increased by 6.8%qoq and
15.6%qoq. Though income sharing/service revenue ratio decreased significantly from
25% in 2Q13 to 22% in 3Q13, as ADVANC had migrated 10.5 million subscribers
(26.8% of total subscribers) from the original 2G concession (25% income sharing)
to new 3G network under 2.1 GHz license (5.25% income sharing), 3Q13 profit was
pressed by higher-than-expected expenses.
- Strong 4Q13 profit due to high season and more 3G subscribers. To
continue growing next year
ADVANC's 4Q13 profit is projected to benefit from high season and lower income
sharing. By end-2013, at least 12 million subscribers would be migrated to new 3G
network as targeted. Thus, 4Q13 profit is projected to rebound from 3Q13, but not as
much as the past record, as ADVANC will be spending more money for advertisement
on new 3G network. ADVANC would recognize higher expense from aggressive
expansion of 3G network in order to boost usage. As ADVANC has been speeding up
from the original plan, CAPEX from next years would be spent. ADVANC's 9M13 net
profit made up 67% of FY2013 forecast. As advertisement expense and CAPEX are
likely to be higher than expected, we revise down FY2013-2014 profit forecast by
12%. Under new forecast, ADVANC's FY2013 profit is projected at B37.7bn, growing
8.3%yoy. ADVANC’s FY2014 is likely to rebound by 13.9%yoy in 2014, as new 3G
subscribers would increase, lowering income sharing under 2G license.
- Share price not to outperform in short term. "BUY" for long-term
investment
As 3Q13 profit was disappointing, ADVANC would pay lower dividend than expected
(4.5% dividend yield). ADVANC might recognize the impairment of a subsidiary DPC
(the concessionaire of 1800MHz) at the maximum of B4.5bn, as the operation expires
on 15 September 2014. Thus, end-2013 retained earnings from separate financial
statement, which can legally be paid as dividend, would be lower than retained profit
in consolidated financial statement. Share price is likely to drop for a short term.
However, ADVANC’s profit is projected to rebound in 2014, and FY2014 fair value at
B315 implies 27% upside from the current price. We reiterate "BUY".