True Corporation

True Corporation Plc (TRUE) 

 

- TRUE executive: two businesses to boost profit 

According to the analyst meeting, TRUE expected profit growth to come mainly from the mobile and the internet businesses from now on. Revenue from the mobile business is projected to grow better than peers’ owing to its best data service; it aims to expand its 4G network coverage to 80% of Thailand's area be the end of this year (best coverage). Revenue from the internet business is anticipate to grow most rapidly among peers as well owing to its nationwide internet coverage since it gains an advantage from low penetration rate of 28% of Thai households nationwide. Competition with the new rival (ADVANC) is not worrying since TRUE's largest market share gives it a significant advantage. The TV business is just an addition in line with convergence strategy. While expense is projected to increase as TRUE invests more in every business, TRUE would control other cost to keep it overall expense lower than revenue. SG&A/Sales increased yoy in 1Q15 due to higher 4G network advertising expense, likely to stay unchanged in 2Q15 but expected to decrease yoy in 2H15.  

- Revise down 2015-2016 earnings forecast due to higher-than-expected SG&A 

We have the same outlook as TRUE that its income growth for the remainder of the year would come mainly from the two core businesses with sufficient strength and competitiveness. SG&A would be higher than expected because the company has been strengthening its core business to capture market share from rivals; this would have an adverse effect on TRUE's earnings only in 1H15, which is in line with its plan. TRUE's normalized profit is projected to stay flat qoq in 2Q15 and then rebound in 3Q15-4Q15 owing to the aforementioned core business, while its SG&A would increase at a slower pace than 1H15. However, since 1Q15 profit made up only 11% of the full-year forecast as a result of higher-than-expected SG&A, we revise down TRUE's FY2015-2016 earnings forecast by 32% on average. Under the new forecast, FY2015 normalized profit is projected at B2.2bn, reviving from normalized loss in 2014, and net profit is estimated at B6.3bn in 2015 (thanks to selling of assets to TRUEIF) and B4.9bn in 2016 (no extraordinary profit). 

- New fair value close to current price 

New fair value (DCF) is B11.6, implying limited upside. We reiterate HOLD.