Advanced Info Service

Advanced Info Service Plc (ADVANC)

In line with estimate: ADVANC reported an Bt8.7bn net profit for 2Q12, up 43% YoY but down 2% QoQ. Stripping out extra items—FX and a Bt386m goodwill impairment for DPC in 2Q11—core profit would have risen 34% YoY but dipped 2% QoQ. The reported net profit was in line with our Bt8.6bn estimate. The firm announced a Bt5.9 DPS for 1H12 operations.
Results highlights: The robust YoY increase was led by: 1) the headline corporate tax cut to 23%, 2) rises in both voice and nonvoice revenues, 3) a dive in network amortization expenses and 4) lower interest expenses. The QoQ dip was due to higher network rental and marketing expenses. Service revenue (excl. IC) rose 12% YoY and was flat QoQ—no seasonal impact. Voice revenue grew 6% YoY but slipped 1% QoQ, while nonvoice revenue rose by 35% YoY and 6% QoQ, led by surge in demand for mobile data. 
Network amortization dropped by 14% YoY and 4% QoQ, as BTO assets were fully depreciated. Network OPEX rose YoY and QoQ with the buildout of 3G-900MHz base stations. Marketing expenses increased both YoY and QoQ.
Outlook: The firm gave the following new guidance for FY12: 1) Service revenue (excl. IC) growth of 8-10% (voice revenue of 5% and nonvoice revenue from 20% to 30%), 2) sales revenue of 20% (up from 10% previously) and 3) a 13% YoY decline in amortization expenses. It maintains its FY12 EBITDA margin guidance at 44% and CAPEX guidance at Bt8bn.
Nonvoice revenue growth will continue, while voice revenue may soften in 2H12. Marketing expenses will rise toward YE12 (but remain in the range of 2-2.5% of total revenue). The new guidance is in line with our assumptions—a 10.3% rise in FY12 service revenue (excl. IC). We forecast a Bt8.5bn 3Q12 net profit, up by 38% YoY, but down 2% QoQ on seasonality. 
What’s changed? We maintain our FY12 net profit unchanged.
Recommendation: We have downgraded our ADVANC rating from BUY to HOLD. Its valuation is stretched—only a 3% upside to our target price.