Advanced Info Service

Advanced Info Service Plc (ADVANC)

 

Investment thesis

ADVANC is our sector pick, backed by yield support. In light of JAS dropping its 900MHz license, the overall mobile competition will be less intense than we had previously expected but the competitive landscape would not go back to that of the pre-4G auction. As TRUE acquired both 4G-900MHz and 4G-1800MHz licenses, it will compete head-on for market share against ADVANC and DTAC. We advise investors to re-accumulate the stock at the acceptable 6-6.5% yield support price, which is lower than our previous acceptable 7-7.5% level due to the more easing competitive environment in the absence of JAS. The new acceptable 6-6.5% yield support implies a Bt158-170 price.    

Insights into 1Q16—core earnings drop 

We estimate a Bt8.4bn net profit for 1Q16, down 15% YoY and 22% QoQ. Stripping out a Bt50m FX gain in 1Q16, we assume 1Q16 core profit to be Bt8.35bn, down 16% YoY and 21% QoQ. The YoY core profit tumble is due to a jump in marketing expense related to the huge handset subsidy for taking care of 2G users, a dip in service income and a rise in interest expenses, which should have outweighed the effects of the absence of 2G-900MHz network amortization expense effective in 4Q15 and lower regulatory costs. We model that the 1Q16 service income (excl. IC) should dip 0.8% YoY but inch up 0.6% QoQ. Of the Bt8bn extra expenses for taking care of 2G subscribers, we expect only Bt3.5bn of the handset subsidy to be booked under marketing expenses in 1Q16 (see details on page 5-6). 

MOU for partnership deals inked with TOT at end-March 

The TOT board has already approved the signing of the Memorandum of Understanding (MOU) for its partnership deals with ADVANC to provide the services on TOT’s 2100MHz spectrum at end-Mar 2016. However, the official signings of five contracts with TOT following the MOU are pending review by the Office of the Attorney General. We expect ADVANC to provide the trial 4G services on TOT’s 15MHz of 2100MHz spectrum following the MOU signing. The five contracts include the use of TOT’s 15MHz of 2100MHz spectrum until 2025, the 2100MHz network expansion, the lease of the disputed 13,200 Build-Transfer-Operate (BTO) towers and all 900MHz-BTO network equipment from TOT. We estimate that the partnership deals with TOT will incur roughly Bt10bn/annum in extra expenses to ADVANC. 

Upgraded 2017-28 earnings in the absence of JAS 

JAS’ dropping of the 900MHz license will lead to less intense post-4G competition than our previous assumption—that JAS would have been the fourth mobile player in Thailand and snapped the upcountry market share from ADVANC starting 2H17 onward when its network rollout would have been greater. In light of the less competitive scene, we have revised up our net additions assumption by 25-49%, 2017-28, our cumulative subscriber assumption by 1-10%, 2017-28, our revenue forecast by 0.3-3.3%, 2017-28 and our net profit forecast by 0.7-15.9% in 2017-28. Our YE16 DCF-based target price has risen 19% to Bt215.