Advanced Info Service

Advanced Info Service Plc (ADVANC)

The firm, we expect a robust 3Q12 net profit. But we think ADVANC’s share price surge during recent months has stretched its valuation. DTAC looks to be a more attractive play in the run-up to 3G license auctioning, which starts on October 16. Our HOLD rating stands, premised on a good yield of 6%. We have rolled over our investment horizon from YE12 to YE13 and arrived at a new YE13 target price of Bt218.

Robust 3Q12 earnings expected: We estimate a Bt8.7bn net profit for 3Q12, up 41% YoY and flattish QoQ. Stripping out Bt386m in DPC goodwill amortization in 3Q11 and FX, core earnings would rise 32% YoY and be flattish QoQ. There shouldn’t be any seasonal impact on service revenue. The expected YoY core earnings jumped was led by: 1) a 7% headline corporate tax cut, 2) strong rises in both voice and nonvoice revenues, 3) well-controlled OPEX (despite special employee benefits) and 4) a reduction in interest expenses with a Bt5bn debenture repayment in July. Reported 3Q12 core earnings are likely to be flat QoQ because of higher OPEX.

Strong 3Q12 service revenue: We estimate a rise of 11% YoY and 1% QoQ in service revenue (excl. IC), underpinned by solid voice revenue—up 7% YoY—and nonvoice revenue—up 30% YoY. There weren’t any new voice or data promotions in 3Q12. DTAC’s new voice packages had no apparent impact on ADVANC’s top-line. Sales revenue will have dropped 9% QoQ, as no new handset models were launched during the quarter (the iPhone 5 will debut in 4Q12). Sales gross margin should be sustained QoQ at 8%. The net IC gain will be about the level as for 2Q12. 

Well-controlled OPEX in 3Q12: Marketing expenses are likely to post a QoQ fall with less of TV advertising in 3Q12. Network amortization expenses will fall further with the full depreciation of BTO assets. Bad debts and general administrative expenses (excl. staff costs) will have been flat QoQ. Network OPEX should report a rise, due to more 3G-900MHz cell sites (3,500 against 3,150 at end-March). Staff costs will have risen with the payout of special employee benefits. Lower marketing and network amortization expenses should have offset the effect of higher network OPEX and staff costs.