True Corporation

True Corporation Plc (TRUE)

 

Investment thesis    

We have revised our net loss projections deeper by 28% for 2016 (to Bt5.7bn) and by 97% for 2017 (to Bt3.5bn) to factor in additional net financing costs (outweighing lower amortization and tax expenses) related to the new accounting standards for the 1800MHz, 900MHz, and its two digital TV, licenses estimated at Bt1.83bn in 2016 and Bt1.73bn in 2017. However, those items are non-cash and have no impact on our DCF-based target price. Although there is a speculative play on TRUE share price in March for its rights offering price, which will be concluded on 31 Mar 2016 by using its 20-day average market price, we still recommend a SELL rating on the stock based on its fundamentals due to its huge recurring loss for at least 5-6 years.  

Results recap for 4Q15—core profit is consistent with model 

TRUE posted a Bt398m net profit for 4Q15, down 79% YoY and 62% QoQ. Excluding extra items in 4Q15—Bt178m net in extra other income and a Bt110m FX loss—core profit would be Bt330m, down 87% YoY but up 852% QoQ. Note that our core profit included the gain from transferring new towers to DIF—583 towers in 4Q15 against 3,021 towers in 4Q14 and 865 towers in 3Q15. Net profit undershot our model by 20%, led by higher FX loss but core profit was in line with our model (see details on page 4).

Targets 15% service income growth for 2016 

Its key revenue growth drivers in 2016 are network strength, convergence and innovative product offerings. True Move-H’s 4G and 2G network will reach 98% population coverage by May 2016 while 50% of households will access True Online’s fiber broadband service by YE16 with its new fiber-optic-to-home rollout, which started in 2H15 through to YE16. With regard to 4G-900MHz services, the rollout plan will take five months (from May 2016) on its existing 16,000 850MHz towers with added new 4,000 towers toward YE16 to 20,000 towers. 

It targets 15% service income growth and 15-18% EBITDA growth for 2016—close to our forecasts of 16% group service income (incl. IC) and 14% EBITDA growth for 2016. The CAPEX for 2016 is targeted at Bt47bn—True Mobile (Bt31bn), True Online (Bt13bn) and True Visions (Bt3bn)—which is lower than our Bt50bn. However, its bottom-line is likely to reverse into the red zone starting 1Q16 on its huge spectrum fee amortization expenses of 900MHz and 1800MHz licenses. Given that it will adopt both unlimited and limited promotional packages to match those of rivals, we expect more price-led competition in 2016. 

TRUE will make first 900MHz license payment 

Management confirms that TRUE will pay its first 900MHz license payment to utilize the frequency after it receives bank guarantees of Bt73bn from six banks and the confirmation from the NBTC that if the 900MHz license re-auction were to take place, it would start at JAS’ last bid price or the auction would be postponed for one year at JAS’ last bid price. The 900MHz re-auction would allow TRUE to join the bidding.