True Corp.

True Corp. Plc (TRUE) 

 

TRUE is moving well towards strong gains in revenue market share in the next couple of years whether or not it gets a license in the 1800MHz auction. TRUE will focus on penetrating the prepaid market, where its share remains small. With the ending of 2G service and high churn rate, TRUE – holding the lead position for both 3G and 4G – benefits. We Buy TRUE with DCF-based TP of Bt17.     

Little impact if TRUE doesn’t win 1800MHz license. We assume the 1800MHz auction takes place in November and CAT/DTAC will not be able to hand over 5MHz to the NBTC for auction. This means each license contains only 12.5MHz bandwidth. Even if TRUE does not get a license, we see no major threat to our assumption that it gains revenue market share to 22% in 2017; we expect it to stays at that level from 2018 on (from 18.8% in 2Q15), though TRUE itself expects to achieve 30% in the next four to five years. We base this on the fact that if 1800MHz is actually awarded, the winners will use it primarily for 4G, which is a niche market and widely popular for heavy data users (postpaid in particular). A look at TRUE’s subs show it reached its target for postpaid revenue market share of 28-29% as of 2Q15. TRUE is still the leader in 4G, covering 80% of the country’s population. In our view, ADVANC or DTAC will simply play catch-up once they have their licenses in hand. Currently, ADVANC has no spectrum on which it can offer 4G while DTAC has only 5MHz. Thus, if ADVANC wins one license, it will have spectrum for 4G comparable with TRUE’s 10MHz. DTAC will have a bit larger at 15MHz. This means it will simply stop the hemorrhage of subs to TRUE not threaten share.     

If it gets one license on 1800MHz. If TRUE wins one of the licenses on 1800MHz, it will have 20MHz (10MHz on 2.1GHz and 10MHz on 1800MHz), higher than ADVANC’s 10MHz or DTAC’s 15MHz. With more room for 4G TRUE will be able to expand much faster than peers, keeping it in the lead as it works to gain more postpaid share.  

The real achievement will be 30% prepaid market share. The real path to take TRUE revenue market share to our target of 22% in 2017 and management’s target at 30% lies in the prepaid market. TRUE still has a small prepaid share at 13% as of 2Q15 (up from 9%). But this is mainly because most prepaid subs are still using 2G from ADVANC and DTAC. Our calculations suggest that about 31mn prepaid subs (or ~36% of total subs and 43% of prepaid subs) still access 2G networks and most use ADVANC or DTAC’s networks. 2G will ultimately disappear in Thailand and these subs will move to 3G or 4G. In addition, the prepaid churn rate is very high, giving TRUE a window of opportunity to grab some market share.       

EBITDA margin expanding. As TRUE is close to completing its network rollout of both 3G and 4G (3G coverage is now 97% and 4G 80%), costs will now be low. Most operating costs are fixed, suggesting that the incremental revenue from gains in revenue market share will flow straight through to the bottom line. In our model, we assume EBITDA margin will expand from 10% in 2014 to 30% in 2018 and then stay there. This is a bit below company’s guidance of 35% in 2019. Rising revenue market share and EBITDA margin expansion keeps our projection unchanged.