Total Access Communication

Total Access Communication Plc (DTAC)

Below estimate: DTAC announced a 1Q12 net profit of Bt3bn, down 10% YoY but up 26% QoQ. Stripping out extra items—FX and a deferred tax provision in 4Q11—core profit slipped 6% YoY but rose 13% QoQ. Earnings missed our estimate by 9%, due to higher revenue-sharing obligations to CAT and lower interest income than modeled. Revenue was as expected. Gross profit was 4% below our estimate.
Results highlights: The YoY slippage was due to greater revenue-sharing with CAT (from 25% to 30% effective Sept 16, 2011), network OPEX and marketing (events for 3G HSPA and WIFI) and employee expenses. These negative factors more than offset the effect of the decline in the headline corporate tax rate to 23%. The QoQ rise was due to stronger revenue and a marginal decline in SG&A.
Service revenue (excl. IC) rose by 8% YoY and 4% QoQ, underpinned by nonvoice revenue (up by 43% YoY and 16% QoQ), despite Bt70m in lost income because DTAC gave free calls to customers to compensate for service interruptions in Jan. Voice revenue flattened—up 1% YoY and down 1% QoQ. Blended ARPU (excl. IC) rose 1% QoQ—the third straight quarter—led by value-added service revenue.
Outlook: The firm maintains the same FY12 guidance—7-9% revenue growth, Bt18-19bn in free cash flows (down 12-16% YoY), due to heavier FY12 CAPEX (Bt8-9bn), which implies FY12 operating cash flow expansion/contraction of -5% to +3%. DTAC will launch more aggressive voice promotions to boost MOU in 2Q12. The impact of the Bt0.99/min maximum tariff will be insignificant—less than 5% of total revenue. Marketing spend will trend downward toward YE12. The network swap (upgrade) program will be completed by YE12; hence, significantly lower costs in FY13. Management expects 3G auctioning in early 4Q12.
What’s changed? The 1Q12 net profit represents 25% of our FY12 forecast, which we maintain unchanged.
Recommendation: Our BUY rating stands. We advise overlooking the FY12 flat earnings and focusing on 3G auctioning in 4Q12. DTAC remains our top pick, as it has the greatest scope for upside from a 3G license (its cost structure would be much lower).