Advanced Info Service

Advanced Info Serviice (ADVANC)
3Q12 profit slightly recovers from 2Q12 despite low season
The service revenue in 3Q12 is likely to recover by 2.00% QoQ due to
benefits from the number of subscribers that is projected to increase
continuously close to one in 2Q12 at 2% QoQ or 680,000 units after DTAC,
the major opponent, has faced network failure. Combined with constantly
growing non-voice revenue, the average revenue per user (ARPU) is
projected to stabilize QoQ. Nevertheless, the revenue from mobile sales is
projected to drop by approx 11.9% QoQ since the consumers are still waiting
for a launch of new iPhone at end-2012, so 3Q12 revenue from sales and
service is likely to stabilize QoQ. Fortunately, the gross profit margin in 3Q12
tends to improve to 42.3% from 41.4% in the prior quarter because the
gross profit margin of mobile sales revenue (despite a shrink) is a lot lower
than one of service revenue. Although there is an offset due to effects from
administrative expense that tends to rise by 4.0% QoQ from 41.4% in 2Q12
as a result of paying extra bonus for employees in 3Q12, there is
compensation partially from the interest expense that has been saved by
B42m from 2Q12 aer repaying debenture by B5bn during the 3Q12.
Accordingly, the net profit in 3Q12 is projected to stand at B8.8bn or an
increase of 1.8% QoQ.

High season to boost profit to peak in 4Q12, urging FY2012 profit as expected
According to benefits from high season and sales of new iPhone that will be
on sale at end-2012, ADVANC’s sales and service revenue is projected to be
boosted to peak in 4Q12 as well as 4Q12 profit that will be urged to reach
record high of the year. Accordingly, we’re convinced that ADVANC’s 2012
net profit will grow by 58% YoY as projected in our current forecast.
Moreover, there’s a positive factor from joining an auction for new 3G license
on 2.1 GHz spectrum (16-18 October 2012) and ADVANC is projected to win
since it’s the one with highest financial readiness and highest customer base.
The company is likely to get 3 licenses from this round of auction, with 5 MHz
spectrum per each, which will take 3-6 months for new network installation
and the service will begin in the late of 1Q13. In addition, ADVANC will
benefit from gradual customer transfer of the current concession with 25% of
revenue sharing to the new license with the cost that has decreased to 10-
12% from service revenue (auction fee included). Under 2013 assumption,
there’re 2 group of first-rated customers for transfer which are the post-paid
and the pre-paid at 50% and 10% respectively from the total customer base
to the new license, so we believe that 2013 profit will grow continuously 12%
YoY to B39.4bn.

Share price already reflects all positive factors. Recommend
“HOLD”, waiting for next year’s growth

According to ADVANC’s current share price that already has increased to
reflect positive news from 3G license to near FY2012 fair value at B210, we
reiterate our recommendation of “HOLD”, waiting to receive dividend and
return of growth and upside in 2013. The fair value of 2013 will be revised up
to B250, which will be used after an announcement of 3Q12 earnings result.