Total Access Communication

Total Access Communication Plc (DTAC)
- 3Q13 profit to decline qoq as 3G expense larger than benefit
DTAC has started providing 3G service under 2.1 GHz spectrum for the first time in 3Q13
after the service commencement on 23 July. By end-3Q13, the company could migrate
2.5 million subscribers from the 2G system to the new system (2.5 million other clients
are lining for the migration), which is 9% of its total subscribers. Better data service
from the 3G network on the existing 850 MHz spectrum and 2.1 GHz spectrum would
boost the service income in 3Q13 significantly, likely being able to compensate for the
voice service revenue that would weaken both qoq and yoy due to recessing domestic
purchasing power. Overall, we project the service revenue to increase 1.4%qoq, while
revenue from mobile sale would stabilize qoq as a result of an introduction of a low-cost
mobile phone under its own brand that uses a trinet network. As a result, overall revenue
would grow by 1.2%qoq. However, cost of service and selling and administrative
expense would rise 15%qoq, mainly because of amortization of B225m for the 3G license
for the first quarter. At the same time, the company would only slightly benefit from
lower revenue sharing (from 30% of the total revenue to 5.25%) from transfer of
subscribers to the new 3G license, because the number of transferred subscribers was
low at only 2.5 million and could not negate the increased expense from expansion of
new 3G-2.1 GHz network stations, while the marketing expense would be high to attract
customers to the new service. Accordingly, 3Q13 net profit is estimated to decline
7%qoq to B2.4bn (weakening 16%yoy).
- 4Q13 profit to benefit from high season and 3G subscribers.
Continuous growth foreseen next year
The profit in 4Q13 would grow from 3Q13, thanking to following driving factors. 1)
Spending season has approached. 2) The new 3G subscribers have increased, projected
to stand at 10-12 million at the end of the year as targeted, which would result in a
benefit of larger income sharing than the increased expense for the 3G network
investment and marketing expense in 4Q13. 3) There would be a positive factor from an
introduction of new iPhone for the first quarter to boost the mobile sales, as well as the
revenue from data service and new subscribers. However, voice service revenue would
be lower than our forecast as a result of weakening purchasing power. In addition, as we
might use 2H13 and 2014 financial statement, which would be higher than our forecast,
we might revise down our forecast by 5-10% after 3Q13 earnings report. Preliminarily,
under the new forecast, FY2013 net profit would grow 6%, with 13% growth projected
next year after the company can recognize a benefit from the new 3G license for a full
year.
- Share price might not outperform in near future. Buy for long-term investment
Although the share price might weaken in the short term to reflect the dampen earnings
in 3Q13, we are confident that the new 3G service will start to show benefit since next
year and boost DTAC’s profitability in the long run. We maintain FY2013 fair value at
B128, still implying 13.3% upside because after 3Q13 earnings announcement we will
change to use 2014 fair value, which is substantially higher than B128. Dividend yield
can be expected at 3%-4% p.a. Buy.