Advance Info Service

Good stock with attractive upside and dividend BUY

Advance Info Service Plc (ADVANC)

- Lower advertising expense makes 3Q14 profit improve slightly

Although service revenue (IC excluded) in 3Q14 is projected to drop

0.5%qoq, it is still better than previous years when service revenue in the

third quarters usually weakened considerably from the second quarters,

thanks to good response from subscribers after the 3G network was complete.

On the other hand, cost of service (IC excluded) is projected to increase

0.5%qoq from recognition of 3G network cost for a full quarter after the

investment in 2Q14, despite compensation from a projected 9.2%qoq

decrease in regulatory cost (for more details, see page 2). Funding cost is also

projected to rise B30m from additional loan of B5bn made during the quarter.

However, the aforementioned negative effects will be negated by a 6.4%qoq

decrease in selling and administrative expense (advertising expense was high

in 2Q14 from promotion of 2014 World Cup). Overall, 3Q14 net profit is

projected to improve slightly by 1.4%qoq (3%yoy) to B8.6bn.

- Profit to make year’s peak in 4Q14

make a year’s high in 4Q14 due to seasonal effect (boosting service revenue

growth). In addition, cost of service would decrease because of lower ratio of

regulatory cost to revenue since the subscriber migration from 2G to 3G

might exceed the company’s target of 37.4 million subscribers (85% of total

subscribers) by the end of this year, which would significantly reduce total

regulatory cost to revenue ratio and help compensate for increasing 3G

network cost. Accordingly, we maintain our forecast, estimating full-year

profit in 2014 at B37bn or flat growth of last year and 15% growth in 2015.

- Reviving profit boosts share price

The reviving profit would boost ADVANC’s share price, while the fair value still

provides around 17% upside. Dividend yield can be expected at 5.5% p.a. We

reiterate BUY.