Total Access Communication

Total Access Communication Plc (DTAC)

Network failure projected to push Q3 2012 profit to weaken slightly from Q2 2012

Sales and service revenue in 3Q12 tends to decrease by 2% QoQ mainly due to service revenue that is projected to stabilize QoQ because of the network failure on 28 August 2012, believing to affect the confidence of customers. Accordingly, the growth of net additions is projected to increase only by 0.7% QoQ or around 150,000 units while the average revenue per user (ARPU) is
projected to stabilize QoQ since some of the revenue will be spared for extra compensation. There’re 2 alternatives of the mentioned compensation for customers: 50-100 minutes of free calls in 30 days, and free unlimited internet service for 7 days. However, non-voice revenue that has grown at a high rate is projected to help compensate the abovementioned effect. For phone sales, they’re projected to decline by 16.8% QoQ because customers still wait for an opening of new iPhone in the late of year while the cost of service/revenue is likely to stabilize QoQ. Combined with the interest expenses that are projected to decrease by B15m which will help compensate
the B10m fine for the NBTC, 3Q12 net profit is projected to stand at B2.74bn or only 3.3% QoQ drop.

FY2012 profit projected to be slightly lower than expected due to negative image

Although sales and service revenue in 4Q12 tends to recover once again due to benefits from high season and the opening of new iPhone in the late of year, the sales and service revenue is projected to grow not as much as from 3Q12 like the past due to the negative image from network failure. The benefits from network swap which is currently completed in the South and Bangkok (projected to complete countrywide in the late of this year) are projected to help reduce some network cost, so 4Q12 profit is likely to recover QoQ. Nevertheless, the lost confidence of customers because of the recent network failure might drag FY2012 profit forecast of DTAC below our projection (but at only 4-5%), therefore we maintain our forecast that projects 2012 profit to stabilize close to one of the prior year. We’re convinced that 2013 net profit will return to grow by 18% YoY which is the most magnificent among peers due to the decrease of revenue sharing from
the current 30% to 10-12% for 3G service under the new license of which the bidding will start in October and the service provision will start next year. In addition, the company’s cost control is projected to be more efficient after the completion of network swap.

Recommend “HOLD”, waiting for next year’s return of growth and 3Q12 dividend yield

Though the current share price of DTAC has already exceeded 2012 fair value, using DCF, at B82.6, we reiterate our recommendation “HOLD” to wait for the return of growth and the tendency of fair value to increase next year. Fair value in 2013 is projected to stand at B105 (after an announcement of 3Q12 earnings result). DTAC’s 3Q12 dividend yield is projected at around
B0.90/share, considered 1.0% dividend yield after an announcement of 3Q12 earnings result (DTAC revises its dividend yield every quarter.