Total Access Communication

Total Access Communication Plc (DTAC) 

 

-1Q15 profit grows qoq as expected from lower expense 

DTAC's 1Q15 net profit was reported at B2.29bn, 8.2% better than expected thanks to Fx gain of B199m. Excluding extraordinary items, 1Q15 normalized profit was B2.1bn, growing 21.3%qoq but falling 36%yoy (as expected) since SG&A decreased by 16%qoq, and cost of service (IC excluded) dropped by 5.4%qoq to B10.3bn. Regulatory cost decreased by 5.8%qoq after DTAC migrated 83% of its total subscribers (versus 72% in 4Q14) from 2G network to 3G network. However, the aforementioned positive factors were negated as service revenue (IC excluded) fell 0.7%qoq to B16.7bn (worse than expected) and loss from mobile phone sales increased by B500m. 

- 4G network on 1800 MHz concession: good in short term, disadvantageous in long run 

DTAC's 2Q15 profit is expected to stay unchanged from 1Q15 because network improvement in 4Q14-1Q15 would be good for service revenue and regulatory cost would drop after DTAC resumes migrating subscribers from 2G network to 3G network. However, DTAC's profit would grow only slightly in 3Q15-4Q15 (initially projected to rebound significantly) due to higher expense since DTAC focuses on 4G network development, aiming to be No.1 4G network provider. The company plans to raise its investment budget from B13bn to B18-20bn and take advantage of its 1800 MHz spectrum to develop its 4G network. Although this is a good strategy to fix its negative image of having poor network and attract high-end subscribers in the short term, this reflects that DTAC may be less interested in the NBTC's 1800 MHz spectrum license bid in late 2015. Thus, DTAC's regulatory cost under a concession system would be as higher than a license system. Waiting for clarity whether the NBTC would approve the use of 1800 MHz spectrum for 4G network, we have not included an increase in investment budget in our forecast yet. Given that the NBTC officially approves this, we would revise down DTAC's FY2015-2016 earnings forecast by 5-10% (intensive investment in 4G network would boost service revenue for a full year as expected after 1Q15 profit missed our forecast, but expenses not included in our forecast will depress DTAC's earnings). 

-  Down revision may decrease upside. HOLD 

Despite 19% upside, DTAC's earnings may be revised down, thus resulting in limited upside. Besides, earnings growth is not likely to be seen until 2016. We recommend HOLD for dividend.