True Corporation

True Corporation Plc (TRUE)
 

Massive 4Q11 core loss: TRUE reported a Bt239m net profit for 4Q11 (against a Bt266m net loss in 4Q10 and a Bt1.4bn net loss in 3Q11). The firm booked four major extra items in the quarter: 1) Bt6.3bn in expenses related to a US$ bond buyback (reversal of FX position, unwinding a hedging and a premium buyback price), 2) a Bt646m deferred tax provision, 3) Bt12.1bn in gains from a Hutch asset revaluation and 4) a Bt1bn goodwill impairment related to BITCO. Stripping out the extra items, the core number would be a Bt3.9bn loss, deeper by 410% QoQ and 1,074% YoY. EBITDA dropped 28% YoY and 22% QoQ.
The 4Q11 bottom-line was better than our Bt5bn net loss estimate, due to the Bt12bn Hutch asset revaluation (we had modeled for a Bt2bn revaluation). But the core loss was 246% deeper than we expected, mainly due to heavy SG&A and tax expenses.
Results highlights: The huge core loss was due to heavy SG&A—advertising, marketing and network amortization expenses for TRUE Move-H in support of the 3G service, higher revenue-sharing obligations for TRUE Move, increased interest expenses and the impact of the flooding on TRUE Online’s voice income and TRUE Visions’ subscriptions. All three business units—TRUE Online, TRUE Mobile Group and TRUE Visions—reported YoY core operational deterioration. Hutch CDMA and TRUE Move-H together posted a 214% deeper QoQ net loss of Bt2.2bn.
Outlook: Management targets a 5-8% rise in the FY12 top-line with 7-9% revenue growth for TRUE Mobile and TRUE Visions and a 5% income increase at TRUE Online. The firm targets EBITDA improving across all business units in FY12. However, we think the bottom-line will be submerged by higher network amortization and interest expenses related to TRUE Move-H’s business expansion. TRUE aims to break even by YE12. But we are skeptical about that a bottom-line turnaround by YE12 is a realistic scenario, given very heavy CAPEX plans for this year—the firm’s current guidance is Bt23bn, more than twice the guidance given at the Nov 2011 analyst meeting of Bt10bn.
What’s changed? In light of the heavier CAPEX guidance, we will revise up the FY12 CAPEX assumption in our model to Bt20bn (from Bt9bn). As such, our FY12 net loss forecast looks set to deepen. 
Recommendation: Our HOLD rating stands.