ADVANCED INFO SERVICE

ADVANCED INFO SERVICE

  

- 2Q15 profit to drop due to low season, higher cost 

 

2Q15 profit is projected to fall from 1Q15. Service revenue (IC excluded) is expected to slip 0.2%qoq to B30.2bn due to low season (but rising 2.2%yoy since its superior 3G network coverage satisfies middle- and upper-class subscribers' demand and compensates for being the only mobile operator with no 4G service to attract IT lovers). Cost of service (IC excluded) is projected to increase by 1.9%qoq to B13.9bn due to investment in 3G network (coverage expansion and service capacity improvement in densely populated areas). Meanwhile, 2Q15 regulatory cost is expected to drop 4%qoq since the number of subscribers migrated from 2G network (25% regulatory cost) to 3G network (5.25% regulatory cost) would increase from 92% of total subscribers in 1Q15 to 95%, the number of mobile phones compatible with 3G network would grow (which means lower data roaming to 2G network with high regulatory cost). SG&A is projected to increase by 8.3%qoq since new hi-speed internet service would be launched. Overall, ADVANC's 2Q15 net profit is estimated at B9.3bn, falling 5.9%qoq but rising 9.9%yoy. 

 

- 2H15 profit to grow gradually 

 

Although 1H15 earnings are expected to make up 45.4% of our forecast, net profit is projected to grow gradually and improve from the same period last year in 3Q15-4Q15 because of higher service revenue as the economy would rebound from 1H15 on. Regulatory cost would drop as the number of subscribers migrated to 3G network increases at a faster rate after OLA (new 3G device for low-income subscribers, B799 each, with Facebook, LINE, and Youtube available) is launched. 4Q15 would be a high season as well as the first season where ADVANC would stop recognizing amortization cost of around B3bn/quarter for 2G network (2G network concession expires on September 15, 2015). Accordingly, we maintain our profit forecast of B42bn or the growth of 15%. 

 

- Strong profit ahead, positive sentiment from 4G bid 

 

ADVANC's profit would be strong for the remainder of the year. ADVANC is anticipated to benefit most from winning the 4G bid in late 2015 since it would finally be able to operate 4G service like peers. With 23.9% upside and over 6.0%p.a expected dividend yield, we reiterate BUY.