Advanced Info Service

Advanced Info Service Plc (ADVANC)
 

Investment thesis: Despite its share price rally of 80% since June 2011 to factor in the 3G value ahead of 3G auctioning during Sep-Oct 2012, we believe ADVANC’s share price will strengthen further over the next six months. We recommend holding onto the stock till the auction date. In light of expanded 1Q12 earnings based on stronger nonvoice revenue and lower OPEX, we have upgraded our FY12 profit projection by 7% and YE12 target price by 11% (to Bt200). Our BUY rating stands, based on: 1) robust FY12 profit growth, 2) a series of 3G developments over the next six months and 3) a good yield of 6%.
Estimate robust 1Q12 earnings: We estimate an Bt8.1bn net profit for 1Q12, up a robust 29% YoY and 121% QoQ. The new estimate is more bullish than our Bt7.8bn previous estimate. The QoQ net profit jump is due to the absence of DPC goodwill impairment and a deferred tax expense provision. Core profit should post a jump of 22% YoY and 18% QoQ. The solid YoY rise in 1Q12 core earnings is thanks to: 1) a headline corporate tax cut from 30% to 23%, effective Jan 2012, 2) strong rises in both voice and nonvoice revenues, 3) declines in overall OPEX and 4) a tumble in interest expenses due to a huge loan repayment in 4Q11.
Network-sharing and 4G partnership with TOT? We believe that the idea of ADVANC forming a partnership with TOT through a network-sharing model is still in the preliminary stage. Two potential benefits from the planned network-sharing business model with TOT are the first right-of-use to the 900MHz-BTO assets and the value enhancement from an equity stake in the TOT’s planned SET-listed tower company. Moreover, TOT’s planned 4G wireless broadband project is still in the early stage. However, if it were to go through, we believe that it would potentially give ADVANC long-term benefits of access to TOT’s 2.3GHz bandwidth. 
3G visibility in progress: On March 21, 2012 the NBTC approved all three master plans (frequency, telecom and broadcasting) and they are expected to be published in the Royal Gazette at the end of March or in early April. We estimate the auctioning of licenses for 2.1GHz spectrum during Sept-Oct 2012 and the awarding of licenses in 4Q12.   
Outlook
Estimate robust 1Q12 earnings: We estimate an Bt8.1bn net profit for 1Q12, up a robust 29% YoY and 121% QoQ. This new estimate is more bullish than our previous estimate of Bt7.8bn. The QoQ net profit jump is attributable to the absence of two extra expense items—DPC goodwill impairment and a deferred tax expense provision. The firm booked Bt385m in DPC goodwill amortization expenses (4Q11 was the last quarter of recognition) and a Bt2.84bn deferred tax provision (ahead of the corporate tax cut to 23% in 2012). Stripping out extra items, core profit would have jumped 22% YoY and 18% QoQ. The solid YoY rise in 1Q12 core earnings is thanks to: 1) the headline corporate tax cut from 30% to 23% effective Jan 2012, 2) strong rises in both voice and nonvoice revenues, 3) declines in overall OPEX and 4) a tumble in interest expenses. We estimate that a 7% effective tax rate cut will reduce 1Q12 tax expenses and, hence, boost the 1Q12 bottom-line by Bt740m.