Advanced Info Services

Advanced Info Services Plc (ADVANC) 

 

ADVANC continues to battle headwinds, the latest being TOT’s board decision to nix the JV with ADVANC to handle the dispute over the concession towers. This has no impact on our forecast as we already assumed annual rental expense of Bt4.7bn after concession expiration. What is important is the further deterioration in the relationship between TOT and ADVANC and the possibility TOT will do more to hurt ADVANC. Although we maintain our Buy call on the stock with DCF-based TP of Bt270, the overhangs will lead it to underperform the SET.  

What's new: According to local papers, some members of TOT’s board do not wish to set up a joint venture (JV) to handle the 13K concession towers built by ADVANC. Rather, the board wishes to stick with the original concession Build-Transfer-Operate (BTO) concession contract. This means ADVANC will have to transfer all the concession towers back to TOT – and will have to rent them back from TOT at the market rate if it wishes to use them.  

Implication: The relationship between TOT and ADVANC seems to have worsened.  

The back story is this. The concession between ADVANC and TOT involves a Build-Transfer-Operate (BTO) contract. This means ADVANC is required to return all the assets it built over the period of the concession to TOT - including the towers - after the concession expired on September 30, 2015 (last week). The problems began with the expiration of TRUE’s contract with CAT in 2013, when it refused to return all concession towers to CAT; this is still in arbitration. Now, as concessions for DTAC and ADVANC expire, they are also trying to keep their towers. To this end, both have taken their cases to arbitration. The cases have yet to be resolved.  

However, things began to look up when CAT’s board approved setting up a joint venture (JV) with DTAC to operate the concession towers. This led the market to believe TOT would do the same for ADVANC. This hope has now been dashed. 

As for impact on our forecast, there is none. We never assumed a JV in our model and put in rental expense of ~Bt4.7bn (based on TRUE’s rent paid to DIF) for the use of the 13,198 towers as of October 1, 2015 (the day after the concession ended).  

Buy with DCF-based target price of Bt270. There is no impact on our forecast. The real concern is the auction and whether it will take place before year’s end. TOT and CAT could disrupt the auction and if they do so, it would be a real threat to ADVANC’s competitive status. We continue to prefer TRUE to ADVANC.