True Corporation

True Corporation Plc (TRUE)

3G service to launch in future using both 850 MHz and 2.1 GHz spectrums
Recently, there has been an acquisition of new 3G license of 2.1 GHz spectrum
from the NBTC on 12 December 2012 after winning the auction with B13.5bn. The
company would have to pay the auction fee in 3 installments. For the 1st
installment, it has already been paid by 50% while the rest of 50% would be
divided into 2 installments which would be paid within 15 days after a lapse of 2
and 3 years from the date of obtaining the license. The investment in 3G network
under the new license of 2.1 GHz spectrum shall be divided into 2 phases. The 1st
phase of service would require B8bn while the 2nd phase (or long term) would
require B27bn in total. As acquired from TRUE about the future business, it at first
would focus on expanding the customer base with 3G service of 850 MHz
spectrum (in contract with CAT) since the network within the aforementioned
bandwidth has already spread throughout the country. For 2.1 GHz spectrum, it
would be used to support the area with high utilization rate because this spectrum
possesses higher network coverage for the high-utilization area although the
service area per 1 station would be less than 850 MHz spectrum. In terms of
TrueVisions business, the company is projected to lose some of customers (not
much in proportion) who watched only football after it lost a bid for the English
Premier League (EPL) broadcasting rights. We believe that most customers are
still families who watch varieties of programs. Nevertheless, TRUE is projected to
have more difficulties in expanding the market than the present.

Despite less risk from contract with CAT, new license brings more expenses
The new 3G license of 2.1 GHz spectrum would help TRUE to provide 3G service
with more constancy than the present since the company as the spectrum owner
can directly request the numbers from the NBTC. This is different from the service
provision under 850 GHz spectrum with CAT which has brought about problems
since CAT as the spectrum owner is the only one who is able to request the
numbers and give to TRUE which lacks constancy due to unfinished contract
between CAT and TRUE, projected to take a considerable amount of time. In case
both sides could settle the agreement, the last procedure would still have to be
taken into the Royal Decree’s consideration. Since TRUE has substantially invested
in the network under 850 MHz spectrum already and still has to invest in 2.1 GHz
network in the future regarding the NBTC’s rules and also to be an alternative
from the contract with CAT, we’re convinced that the company would provide 3G
service using both spectrums which would raise the capital expenditures to the
level that’s higher than competitors’ due to lots of depreciation cost and interest
expenses. Moreover, TRUE might have to make capital raising due to weakness of
the financial status. In addition, TrueVisions business tends to be affected after
losing the English Premier League (EPL) broadcasting rights. Accordingly, we
revise up our loss forecast in 2013 under an assumption of 1) the expenses from
new 3G license of 2.1 GHz spectrum which are license fees that have to be paid
by B900m annually over the 15-year license period and the expenses from 2.1
GHz spectrum network expansion, and 2) the growth forecast of TrueVisions
members at averagely 3.0%/year is revised down to stabilize YoY, resulting in 65%
increase of 2013 loss to B4.2bn. Additionally, we revise up 2012 loss from 30% to
B6.4bn due mainly to 9M12 loss that’s higher than projected.

Tremendous investment budget to pressure share price,
resulting in continuous loss until 2014. Reiterate “SELL”
The pressure from more investment budget due to new license still has posed the
tendency of loss until 2014. The fair value, using DCF, in 2013 stands at B3.60
which is still substantially lower than the current share price. We reiterate our
recommendation of “SELL” for TRUE.