Intuch Holding

- 2Q14 profit stays flat from 1Q15 

INTUCH's 2Q15 profit was strong mainly from the two subsidiaries:  

1) 2Q15 shared profit from ADVANC (holds 40.45% stake) remained high from 1Q15. Cost of service (IC excluded) decreased 3.6%qoq. Despite 3G network expansion, it could keep related cost unchanged from 1Q15. Also, regulatory cost dropped 11.4%qoq after more subscribers migrated to 3G network used 3G-compatible devices, thus reducing cost from data roaming to 2G network (25% regulatory cost). These positive factors compensated for a decrease in service revenue caused by low season and higher SG&A. 

2) THCOM's (holds 41.14% stake) 2Q15 normalized profit rose by 13.5%qoq since Thaicom7's utilization rate rose from 1Q15, SG&A decreased, and shared profit from the mobile business in Laos grew 67%qoq. Overall, INTUCH's 2Q15 normalized profit was B4.0bn, staying flat from 1Q15. Including B43m extraordinary profit (profit from investment selling minus Fx loss), INTUCH's 2Q15 net profit was B4.1bn, staying flat qoq but growing 16%yoy. 

- Profit to weaken in 3Q15 but to leap in 4Q15 

3Q15 profit is expected to drop from 2Q15 as shared profit from ADVANC would fall qoq (but grow slightly yoy). Due to fierce competition, ADVANC has to sell phones at lower price (resulting in loss) to maintain its market share, negating a decrease in regulatory cost. With this strategy, ADVANC would have more subscribers using 3G-compatible devices, which means depending less on 2G concession with high regulatory cost. ADVANC's profit is expected to rebound remarkably in 4Q15 since loss from mobile phone sales would drop (new iPhone model will be launched), the business enters a high season, and this is the first quarter that ADVANC does not have to recognize 2G amortization cost (starting in September 15). In addition, THCOM's profit would improve in 2H15 as Thaicom7's utilization rate has reached 100% in mid-3Q15 (100% reserved already). Overall, INTUCH's FY2015 net profit is projected at B17bn, up 16%. 

 

- High upside, high dividend yield  

FY2015 fair value (derived by NAV method based on ADVANC’s and THCOM’s fair values) is B113, implying 41.3% upside. Dividend yield can be expected above 6.5% p.a. In addition, INTUCH would indirectly benefit if ADVANC wins the 4G spectrum bid. We reiterate BUY. 1H15 dividend will be paid at B2.4/share (3% 

dividend yield); XD date is August 24, 2015.