Total Access Communication

Total Access Communication Plc (DTAC)

Dull business escalates competition and presses 4Q13 profit
4Q13 purchasing power has been low due to political turmoil and rivals' sales
promotion (new package with lower voice service fee), so 4Q13 voice revenue
(excluding IC) is expected to stay flat from 3Q13, which was a low season.
Revenue from data service is likely to grow by 8%qoq, decelerating from the
previous three quarters with 10%qoq average growth. Thus, DTAC's 4Q13 service
income (excluding IC) is projected to increase by 4%qoq to B19bn. The launching
of new iPhone would raise revenue from mobile sales by 90%qoq, boosting total
income (excluding IC) by 14%qoq to B24bn. However, total cost (cost of service,
excluding IC) is projected to increase by 19%qoq, higher than income growth.
Depreciation and network administration cost would increase along with expansion
of 3G network, whereas revenue sharing cost would drop by only 2%. Though
DTAC has migrated 10 million subscribers to new 3G network under 2.1GHz
frequency as targeted, most of them were migrated in late-4Q13, so there would
be only a little decrease in revenue sharing cost (from 30% under 2G concession to
5.25%). Marketing expense is projected to leap by 47%qoq, as DTAC has been
injecting commission fee for SIM distributors in order to maintain its market share.
Overall, DTAC's 4Q13 net profit is projected to drop by 9.8%qoq to B2.4bn, and
FY2013 net profit is expected to stay flat from 2012 at B11.2bn, 3% lower than our
forecast.
- To recognize benefit from new license in 2014. Downside from economic situation
DTAC's FY2014 earnings result is expected to prosper. Average number of
subscribers migrated to new 3G network under 2.1GHz frequency in 2014 is
projected to exceed 13 million, versus the average of 2.5 million migrated
subscribers in 2013. Thus, 2014 revenue sharing cost is expected to decrease
significantly from 2013 (end-2014 number of new 3G network subscribers is
projected to reach 17 million, or 61% of total subscribers). This would boost
FY2014 net profit by 28% to B14bn, which would be the highest among mobile
network operators. DTAC has booked 30% revenue sharing cost under 2G
concession, whereas ADVANC has booked 25%. Meanwhile, TRUE had to pay
B1.5bn/quarter amortization under 2G concession until 3Q13 (NBTC has expanded
the concession by one year for TRUE to transfer more subscribers to 3G system).
However, FY2014 profit growth would be pressed. Political unrest is likely to lower
purchasing power and escalate competition, so FY2014 service income would not
grow as outstandingly as expected.
 "BUY". 37% upside, expected dividend yield over 5%p.a.
FY2014 profit is likely to prosper, and FY2014 fair value (DCF) at B136 implies 37%
upside with expected dividend yield at 5%p.a. We reiterate "BUY". Dividend from
4Q13 earnings result would be paid at B1.1/share or 1.1% dividend yield.