Advanced Info Services

Advanced Info Services Plc (ADVANC) 

 
Stock price has come down 24% on market worries over the high cost of the license and a cut in dividend payout from the traditional 100%. The market can now breathe a sigh of relief – the license is in hand and on Friday the company confirmed its strong balance sheet and continued dividend payout ratio at 100% (which we had expected). With this cloud removed, we expect the stock will re-rate. We Buy with a DCF-based target price of Bt190, implying a high dividend yield of 6%. 
Positive tone: ADVANC held a post-auction conference call with analysts and fund managers on Friday, May 27 after winning the 900MHz license at a price of Bt75.654bn, the same price bid by JAS in the last round. The tone was positive and we believe goes a long way towards easing market worries, particularly about dividend.  
Management stands by its guidance on revenue and EBITDA margin for this year despite the rise in amortization expenses for the 900MHz license. It reasons that the jump in amortization will be largely offset by the cut in handset subsidy employed to migrate 2G 900 subs to 3G 2.1GHz and no more roaming with DTAC.  
It feels comfortable leaving dividend payout ratio at 100% in spite of the cost of the license because it has room to gear up the balance sheet via debt and in fact has no debt covenant to limit gearing. In addition, the payment terms for the 900MHz license are generous: It is to pay only Bt8bn within 90 days of winning the bid and then Bt4bn in each of the next two years (in 2018 and 2019). The biggest payment will be in the fourth year (2020). 
ADVANC leaves its 2016 capex guidance at Bt40bn. With the 900MHz license in hand, it will not need to spend as much on 3G coverage and capacity as it had budgeted when it missed the 900MHz license last year. It will reallocate capex to further expand 4G on 1800MHz to reach 80% coverage by the end of this year rather than its earlier goal of 50%, making it more competitive on 4G.   Maintain BUY with DCF-based TP of Bt190. The conference call provided much needed relief to market concerns that have brought the share down 24% over the two months since it confirmed it would pursue the 900MHz license. Paramount, in our view, is confirmation it will continue to with its 100% dividend payout ratio – which in some cases the market had cut to 80% since it announced interest in bidding for the 900MHz license (we had continued to assume 100% payout). With the assurance of the high payout is confirmation of its strong balance sheet. We estimate 2016 DPS of ~Bt10, implying dividend yield of 6% at current price. The other big relief is about its 2G 900MHz subs: The market no longer needs to worry about the loss of revenue from loss of these subs. We reiterate our Buy with DCF-based target price of Bt190.