Intouch Holdings

Intouch Holdings Plc (INTUCH) 

 

Investment thesis 

Given the competitive landscape changes as a result of newcomer JAS and anticipated fiercer competition led by TRUE due to its planned aggressive 4G subscriber acquisition, we decided to make conservative assumptions by slashing ADVANC’s profit and target price. We have cut INTUCH’s Net Asset Value (NAV) target price by 30% (to Bt70) to reflect our lower DCF-based target prices for ADVANC and THCOM. Despite the FY16 earnings cut, INTUCH’s FY16 dividend yield is highly attractive at 7.2%. Our BUY rating stands, premised on its high yield.

FY16-28 earnings and target price demotions 

With regard to ADVANC, we anticipate more intense 4G competition from JAS and TRUE in 2016 after they won 900MHz licenses in Dec 2015. To make its assumptions more conservative in the more heavily competitive climate expected in 2016 and beyond, we then revised up CAPEX assumptions and revised down blended ARPU and cumulative subscribers (excluding 4G) assumptions, FY16-28. Please see details in our ADVANC report on 8 Jan. Hence, we cut ADVANC’s earnings forecasts—by 11% for FY16 (to Bt29.8bn), by 20% for FY17 (to Bt30.8bn), by 29% for FY18 (to Bt28.9bn) and by 30-40% for FY19-28—and its YE16 DCF-based target price by 31% (to Bt170). 

With regard to THCOM, we have maintained our earnings forecasts, FY16-21, unchanged, but cut our YE16 DCF-based target price 21% (to Bt43) by assuming a more conservative perpetual terminal growth rate (from 5% to 3.5%) to bring it in line with its operating cash flow and EPS CAGR of 3-4% pa, FY16-20. Please see details in our THCOM report on 13 Jan. Due to ADVANC’s earnings downgrade, we have cut our INTUCH earnings forecasts—by 10% for FY16 (to Bt12.6bn), by 19% for FY17 (to Bt13.0bn), by 28% for FY18 (to Bt12.3bn) and by 28-37% for FY19-28. With the DCF-based target price downgrades for ADVANC (by 31% to Bt170) and THCOM (by 21% to Bt43), we have cut our INTUCH’s YE16 NAV-based target price by 30% (to Bt70). 

Insights into 4Q15—a sturdy YoY core profit rise

We estimate a Bt4.37bn 4Q15 net profit for INTUCH, up 20% YoY and 26% QoQ. Excluding extra items—FX gain and an impairment for ITV in 4Q15—its core earnings would be Bt4.46bn, up 15% YoY and 12% QoQ. The strong YoY core profit rise is led by core profit rises at both ADVANC and THCOM. For ADVANC, we estimate Bt10.16bn core earnings for 4Q15, up 3% YoY and 16% QoQ, due to the absence of 2G asset amortization from the 900MHz concession expiry and a regulatory cost decline, which will outweigh rises in marketing, general administrative and network OPEX, and a dip in service income. Please see details in our ADVANC report on 8 Jan. 

For THCOM, we estimate a Bt610m core profit for 4Q15, up 35% YoY (but down 7% QoQ), led by greater Thaicom 7 utilization rates, greater equity income from Lao Telecom (LTC), lower SG&A and interest expenses. Please see details in the THCOM report on 13 Jan.