Total Access Communication

No holiday joy here! Neutral

Total Access Communication Plc (DTAC)

build costs are rising, sinking this year’s earnings. 4Q14 will bring no

joy, poised to be the year’s lowest. Still, all these seem to be discounted

in the 25% fall in share price over the past seven months (vs. 24% rise

for ADVANC). Dividend yield is an attractive 5.5% in 2014 and 6% in 2016.

We remain Neutral with an unchanged target price of Bt110.

Management not upbeat. Yesterday’s analyst meeting left us expecting 4Q14 to

continue the decline begun in 1Q14 with core profit of Bt2.4bn, down 8.1% QoQ and

19% YoY – about 4% downside to our 2014F. Regulatory costs are coming down slowly

at the same time depreciation is rising as it builds its network. We expect 2015 to be

somewhat better on completion of 6,500 base stations (2.1GHz and 850MHz) in 1Q15.

4Q14: worst quarter of the year We estimate 4Q14 net profit at Bt2.4bn, down 8%

QoQ but up 28% YoY. We note that the YoY rise comes from the booking of Bt1bn in

network impairment for its 2G network in 4Q13. Removing this shows a YoY fall of 19%.

The biggest drag on earnings is the surge in cost. Depreciation will rise 30% YoY and

12% QoQ as it books additional capex for 3G on 850MHz. This is the negative for the

850MHz network - depreciation is much higher than for 2.1GHz because 850MHz will

continue to be under concession until 2018. This means the depreciated life of the

additional network assets is only four years, half the normal eight. Regulatory cost

savings will not be much of a help either in the quarter, as we expect these to decline

only 1% QoQ because the firm has shifted its strategy to better utilize its existing

network, both 850MHz and 2.1GHz. Unfortunately, fees are higher for the 850MHz

network (30% revenue share) than the 2.1GHz (5.25% under the license).

Higher depreciation expense from investing in 850MHz. Management has added

Bt10bn to capex between 4Q14 and 1Q15. This will be used not only to add to its

2.1GHz base stations but also add 850MHz. About 30% will be allocated to the 850MHz

network with the remaining (70%) to 2.1GHz. The reason for the addition to the

850MHz network is that it provides better coverage than 2.1GHz. Unfortunately this

also is more costly since the 850MHz network must be depreciated out to end with the

concession in 2018, i.e. over four years instead of the usual eight. This means

deprecation expense will be Bt375mn higher than our initial estimate, adding 3%

downside to our 2014F.

Neutral at target price of Bt110. Despite the share price collapse over the past

seven months, DTAC is still trading at a high PE of 18x 2014 and 15x 2015. With its only

attraction being a dividend yield of 5.5% in 2014 and 6% in 2015, we continue to rate it

Neutral.