Total Access Communication

Total Access Communication (DTAC)

- Normalised profit beyond expectation. Increasing 3G subscribers lower income sharing
4Q13 net profit dropped by 33%qoq to B1.8bn as a result of B1.1bn extraordinary
expense. Excluding the extraordinary item, 4Q13 normalized profit was B3bn,
growing 7.7%qoq (22% better than expected). 4Q13 service revenue (excluding
IC) increased by 2%qoq, as income from data service continued growing and
negated the decrease in income from voice service. Also, 4Q13 cost of service
(excluding IC) dropped by 4%qoq because overall income sharing dropped by
18%qoq. The number of DTAC's subscribers migrated from 2G network (30%
income sharing) to new 3G network (5.25% income sharing) rose from 4.2 million
in 3Q13 to 12 million at end-2013 (better than expected at 10 million), negating
SG&A that increased by 13%qoq as a result of advertisement and sales promotion.
Overall, FY2013 normalized profit was B11.8bn, rising 6%yoy.
- 3G subscribers to increase further, boosting FY2014 net profit by 25%
DTAC's FY2014 earnings result is likely to be strong although service revenue might
be decelerating due to the sluggish economy. Income from non-voice service,
namely data service, is likely to boost profit. Moreover, DTAC's income sharing
would drop significantly, as the number of DTAC's subscribers migrated from 2G
network (30% income sharing) to new 3G network (5.25% income sharing) would
rise from the average of 5 million in 2013 to the average of 14.8 million in 2014
(there were 12 million 3G network subscribers in end-2013; there would be 17.5
million 3G network subscribers in end-2014). Thus, DTAC's net profit and
normalized are projected to leap by 25%yoy and 12%yoy, respectively.
- No 4Q13 dividend payment, but higher dividend later on
DTAC announced no distribution of 4Q13 dividend payment. Dividend cannot be
paid because B18bn impairment assessment on assets was recognized in the
separate financial statement, causing a deficit (but shareholders' equity and book
value remained surplus). However, DTAC's 1Q14 dividend would be paid, as DTAC
has been asking for approval for the reduction of legal reserve and premium on
ordinary shares to reduce the deficits in the separate financial statement. We
project that the reduction would increase DTAC's dividend in the future (the
impairment of asset in the separate financial statement would reduce amortization
cost and increase profit in the separate financial statement, so DTAC would be able
to pay higher dividend in the future). Fair value is B122, implying 26% upside. We
reiterate "BUY".