True Corporation

True Corporation Plc (TRUE)
 

Investment thesis: Following the 1Q12 preview meeting, we continue to recommend a HOLD on TRUE, due to concerns over the Hutch deal and expectations of weaker FY12 consolidated numbers, due to heavier CAPEX for TRUE Move-H. The NACC and the NBTC will soon announce the results of their separate investigations into the legality of the Hutch deal.
Deeper YoY 1Q12 core loss expected: We estimate a Bt900m net loss and a Bt1.2bn core loss for 1Q12. The firm guided that it will restate a Bt12.1bn one-time gain booked in 4Q11 from a Hutch asset revaluation to 1Q11 and amortize an additional Bt1bn in Hutch assets per annum, retroactive to FY11. Hence, the restated core loss will be 181% deeper YoY but 61% shallower QoQ. Higher OPEX will outweigh the effect of increased revenue in the core operational numbers.
A QoQ recovery, due to lower OPEX: Group revenue should post a rise of 19% YoY and 7% QoQ. We estimate EBIT at Bt507m—down 73% YoY but up significantly QoQ. The YoY deterioration was due to OPEX in support of TRUE Move-H (marketing, advertising and network amortization). All three business units—TRUE Online, TRUE Visions and TRUE Mobile—are likely to post EBITDA declines for 1Q12.  The QoQ rise is due to lower OPEX (marketing expenses for TRUE Online and TRUE Move and the absence of flooding expenses in 1Q12).
NACC report on Hutch deal: Today, the National Anti-Corruption Commission will issue its investigation report into the TRUE-Hutch deal. Management said that the suspected illegality involves CAT—not TRUE—and the CAT-TRUE contract will stand regardless. We will wait till the report is released before we offer an opinion on the case.
FY12 net loss to be revised deeper: Based on expectations of weak core operational numbers for 1Q12, we will almost certainly revise down our FY12 bottom-line forecast deeper into the red after TRUE releases its 1Q12 results. We don’t think it would be plausible to assume bottom-line break-even for TRUE Move-H this year (assuming that TRUE is allowed to continue using the bandwidth), given heavy CAPEX requirements this year.