Advanced Info Service

Advanced Info Service Plc (ADVANC)
 

Above estimates: ADVANC reported a Bt8.93bn net profit for 1Q12, up a robust 42% YoY and 144% QoQ. Stripping out extra items, core profit would be Bt8.95bn, up by 34% YoY and 31% QoQ. 1Q12 net earnings beat our model by 10%, led by higher revenue and an SG&A decline. Sales and service revenues exceeded our model by 25% and 3%, respectively. SG&A was 12% lower than we expected, due to lower marketing spend. Operating profit exceeded our number by 9%.
Results highlights: The net profit jump was due to stronger EBITDA, the absence of two extra items—DPC goodwill amortization expenses and a Bt2.8bn 4Q11 deferred tax provision—and a headline corporate tax cut to 23%. The core profit rise was led by sales and service revenue and good OPEX management.
Service income (excl. IC) posted a new record of Bt26.6bn, up by 12% YoY and 3% QoQ. Voice revenue grew 8% YoY; nonvoice income jumped 32% YoY, driven by data. OPEX—network amortization, maintenance, marketing and bad debts—posted a QoQ drop. Maintenance expenses dropped 34% QoQ (there were significant flooding-related costs in 4Q11), while marketing spend plunged 55% QoQ on seasonality (there was also a rebranding campaign in 4Q11).
Outlook: ADVANC maintains the same FY12 guidance—service revenue (excl. IC) growth of 5-6%—nonvoice 25% and voice flattish—sales income expansion of 10-12%, CAPEX of Bt8bn and EBITDA margin of 44%. We think the 5-6% service revenue growth guidance is way too conservative. The firm will expand 3G-on-900MHz coverage to 3,500 base stations by June 2012 (from 1,884 at YE11). Network amortization expenses will decline 7% in FY12, while marketing spend and base station costs will rise toward YE12. ADVANC will bid for NBTC licenses in the 1800MHz (in 1H13) and 900MHz (in 1H15) spectrums and expects 2.1GHz auctioning in 3Q12.
What’s changed? We have upgraded our FY12 profit forecast by 3% to Bt34.5bn to factor in better OPEX control. Our YE12 target price rises 3% to Bt205.
Recommendation: Our BUY rating stands, premised on robust FY12 earnings. DTAC remains our top 3G pick, as its share price performance lags ADVANC’s.