Advanced Info Service

Investment thesis

Following the conference call with ADVANC, we remain confident that service income will rise further in 4Q14, underpinned by seasonality, improved network quality and a domestic consumption recovery. There may be scope for upside from bigger volume discounts on roaming rates, a possible business partnership with TOT to share telecoms assets and from bandwidth auctions in 2015. Our BUY rating stands. 

3Q14 results recap—core profit in line with estimate 

ADVANC posted a Bt8.96bn net profit for 3Q14, up by 7% YoY and 6% QoQ. Stripping out a Bt120m FX gain and a Bt194m write-off of obsolete equipment during the quarter, core earnings would be Bt9.03bn, up by 7% YoY and 3% QoQ. Net and core profits were in line with our estimates. Service income (excl. IC) was also in line with our model. Service revenue (excl. IC) rose 2% YoY but dipped 1% QoQ, led by nonvoice income, up by 39% YoY and 9% QoQ (see page 4 for details). 

Operational guidance maintained unchanged 

Despite the slow pace of the consumption recovery in 3Q14, the firm maintains its FY14 service income growth target of 1-2% unchanged, as it believes the climate will improve materially in 4Q14—normally the best quarter of the year—and data use will continue to rise. 9M14 service income (excl. IC) growth was only 0.5% YoY, so 4Q14 service revenue (excl. IC) would have to recover to growth of 3-4% YoY order for ADVANC to achieve FY14 service income (excl. IC) growth of 1.1-1.3%. The Bt40bn CAPEX budget for FY14 also stands unchanged, but ADVANC spent only Bt26bn for 9M14, so disbursement might fall a little short of guidance. 

Management says that the firm’s 20,500 3G-2.1GHz sites cover 97% of Thailand’s population, but it needs to split cells and add WiFi access points in heavy traffic areas. ADVANC targets raising its consolidated EBITDA margin target by 100 bps and its service EBITDA margin by 300 bps in FY14. 

Key takeaways from conference call 

The CFO was confident over the 1800MHz spectrum auction scheduled for July 2015. Price-led competition has intensified now that True Mobile has substantial coverage in the North and Northeastern regions. We expect bigger discounts for volume on ADVANC’s roaming rate for TOT concession bandwidth in the next 1-2 quarters. The firm is interested in the business collaboration offer proposed by TOT. But it is hesitant over the idea of sharing towers with True/TrueGIF and prefers to build its own.