Total Access Communication

Total Access Communication Plc (DTAC)

Above expectations: The 4Q11 net profit was 8% above our estimate because: 1) DTAC’s effective tax rate was only 25.5% (we had modeled for 30%) and 2) revenue was 3% higher than we expected. The low tax expense was related to an affiliate’s dividend income, which was covered by a tax shield. Pre-tax profit exceeded our estimate by 2%. In April, the firm will pay a Bt1.38 DPS for 4Q11 operations, a 2% yield.
Results highlights: DTAC reported a Bt2.38bn net profit for 4Q11, down by 19% YoY and 23% QoQ. There was a Bt306m deferred tax provision (ahead of the 2012 headline corporate tax cut to 23%). Core profit declined by 9% YoY and 13% QoQ on the first full quarter of revenue-sharing obligations to CAT increasing to 30% (Sept 16, 2011) from 25% and the booking of Bt270m in compensation for a Dec 21, 2011 service interruption (it will book a further Bt70m in compensation in 1Q12 for service interruptions in Jan). The compensation was subtracted straight from service revenue, so doesn’t appear as an OPEX item.
Service revenue (excl. IC) rose by 5% YoY and 1% QoQ, despite the flooding, led by nonvoice revenue—up by 35% YoY and 12% QoQ. The traditional seasonal surge was weaker than normal (probably due to the flooding). Blended ARPU (excl. IC) rose 1% QoQ—the second consecutive quarter—on value-added service revenue growth. Service costs (excl. IC) jumped by 15% YoY and 11% QoQ on higher revenue-sharing obligations to CAT.
Outlook: DTAC guides for 7-9% revenue growth and Bt18-19bn in free cash flows for FY12—down 12-16% YoY because of heavier CAPEX (which will jump from Bt6bn last year to Bt8-9bn). That implies operating cash flows of Bt26-28bn for FY12 (-5% to +3%). Revenue-sharing obligations to CAT are now 30%, the effect of which will be mitigated by a lower headline corporate tax rate of 23%. We forecast FY12 profit slippage of 6% YoY. DTAC expects 3G license auctioning by 3Q12.
What’s changed? We maintain our FY12 net profit forecast unchanged.     
Recommendation: Our BUY rating stands. We recommend skipping past the weak FY12 numbers and focusing on 3G developments over the next 6-9 months. DTAC has the greatest scope for profit upside from an NBTC-issued 3G license, in our view.