Advanced Info Service

Advanced Info Service Plc (ADVANC)
 

Investment thesis: We expect ADVANC’s share price to remain fairly resilient to the weak stock market environment, premised on greater 3G visibility and a generous dividend payout. Our worst-case scenario is a YE11 target price of Bt106, pegged to the firm’s lowest historical PER of 13x in the wake of the Sept 2008 financial crash, which implies 16% downside risk. The next short-term catalyst will be the NBTC becoming legally active; we then expect 3G auctioning within a year or so. Despite its solid 2H11 earnings, bolstered by stronger revenue growth, ADVANC’s share price might retreat to some extent in response to the overall SET decline. However, that would present a good opportunity to accumulate the stock ahead of a series of positive 3G developments in FY12, when its share price will be boosted with the factoring in of 3G value. We reiterate a BUY rating, based on: 1) strong earnings growth momentum, 2H11-FY12, 2) 33% upside to our Bt165 post-3G target price and 3) a good dividend yield of 7-8%. 3G value is estimated at Bt18/share. 
Anticipate healthy 3Q11 earnings: We estimate a Bt5.8b net profit for 3Q11, up 19% YoY but down 5% QoQ. The expected QoQ dip is attributable to: 1) a Bt340m special employee bonus paid during the quarter, 2) higher marketing expenses with the launch of 3G on 900MHz, 3) a small rise in network OPEX and 4) a slimmer net IC gain, due to promotional adjustments by Hutch. The strong YoY rise is led by: 1) greater service revenue, 2) solid handset sales and 3) good OPEX control. In the absence of the special employee benefit, 3Q11 net profit would have been flat QoQ.
No flooding impact: ADVANC said the recent flooding didn’t impact on 3Q11 MOU. Even If the flooding were to persist into Oct-Nov, we believe that the impact on 4Q11 revenue and MOU would be negligible, as it would be outweighed by the effect of seasonality. We tracked the statistics for historical flooding events during the third and fourth quarters of FY03-11 and found no real correlation between flooding, MOU and service revenue. Note that despite heavy flooding during Sept-Oct 2010 and Sept-Oct 2011, the firm posted YoY growth in MOU and service revenue for the relevant periods.