Advanced Info Service

Advanced Info Service Plc (ADVANC)

4Q12’s norm profit improves slightly from 3Q12. 2012’s growth recorded at 57%
Due to seasonal effects and an introduction of iPhone5 last December, ADVANC’s
net additions shifted 1.2%qoq. At the same time, increasingly popular non-voice
service has boosted ARPU by 7.7%qoq to B267/unit. As a result, service revenue
(IC excluded) as of 4Q12 increased 4.5%qoq. Furthermore, revenue from mobile
sales has risen above 100% from the previous quarter, so sales and service
revenue in this quarter grew 13%qoq. However, cost of operation increased at a
higher rate than the revenue at 19%qoq due to increasing maintenance expense
and recognition of amortization expense for the new 3G license (2.1 GHz) for the
first quarter since 7 December 2012 at B65m. Moreover, selling and administrative
expense has escalated from acceleration on marketing during the end of the year.
Accordingly, norm profit increased only 0.5%qoq. In addition, in this quarter there
was also an extraordinary expense – amortization of outdated equipment – at
B377m, so net profit in 4Q12 was recorded at B8.4bn, decreasing 3.7%qoq.
Overall, FY2012’s net profit stood at B34.9bn or the growth of 57%yoy, close to our
projection.

New 3G license will boost profit growth to 12%yoy
Although 1Q13 is the first quarter that ADVANC will fully recognize the amortization
of the new 3G license at B245m while service provision under the new license will
be commenced since 2Q13, continuous popularity of non-voice service and a benefit
from a high season in 1Q13 will boost net profit in 1Q13 from 4Q12. At the same
time, although 2Q13 is a low season, the commencement of the new 3G service will
benefit ADVANC in terms of lower cost because revenue sharing will decrease from
25% under the current concession to only 5.75% mainly from a migration of
customers to the new concession. The company has targeted to migrate 8 – 10
millions subscribers or around 25% of its total subscribers to the new license,
almost double from our target of 10%. However, ADVANC projects that 60% of the
subscribers migrated is 2G customers mainly using voice service, so ADVANC will
still have to depend on 900 MHz (2G) spectrum for roaming between 2G and 3G on
2.1 GHz spectrum. Consequently, ADVANC will have to pay revenue sharing to TOT,
the concession owner, at 25% of the roaming revenue which is collected between
networks. Preliminarily, roaming fee will be collected at B0.45/minute. Therefore,
we maintain our previous forecast, projecting net profit in 2013 to grow 12%yoy
from decreasing cost.

20.7% upside and 6% p.a. dividend. Reiterate BUY
We believe that a 3G service under the new license will drive the profit growth of
ADVANC in the long run. At the same time, the company has a positive factor from
an auction for a mobile service concession in Burma, which, if successful, will give
additional upside from the current fair value of B250/share (the current upside is
20.7%). Moreover, the company has announced a dividend payment for 2H12 at
B5.0/share or a dividend yield of 2.87%, going XD on 1 April 2013. Reiterate BUY.