Advanced Info Service

Advanced Info Service Plc (ADVANC)

- Income grows more than expense from lower income sharing, boosting 4Q13 profit
- Increasing 3G subscribers to boost FY2014 profit further from 4Q13
- 2H13 dividend beyond expectation. Fair value implies 29% upside.
"BUY"
- Income grows more than expense from lower income sharing, boosting 4Q13 profit
4Q13 net profit was B8.8bn, growing 4.3%yoy and 5.7%qoq, as we expected. As
a result of the political and economic turmoil, service revenue (excluding IC)
stayed flat qoq and income from voice service declined by 2%qoq. However,
income from other services (non-voice service, long distance call and international
roaming) grew by 6.5%qoq, and mobile phone sales volume increased by 51%qoq
due to the launching of the new model of iPhone. 4Q13 cost of service (excluding
IC) decreased by 8.4%qoq, as overall income sharing dropped by 11.6%qoq. The
number of ADVANC's subscribers migrated from 2G network (25% income
sharing) to new 3G network (5.25% income sharing) increased from 10.4 million
in 3Q13 to 16.4 million (40% of total subscribers), compensating for SG&A that
increased by 14.6%qoq as a result of advertisement and sales promotion.
- Increasing 3G subscribers to boost FY2014 profit further from 4Q13
ADVANC's FY2014 earnings result is likely to be strong. Service revenue is
predicted to grow yoy. Owing to nationwide coverage of the new 3G network,
income from data service is likely to compensate for a decline in income from
voice service due to the slowing economy. Moreover, ADVANC's cost of service
(excluding IC) is expected to drop further like in 4Q13 thanks to a decrease in
income sharing as more subscribers would be migrated. We have an assumption
that the number of subscribers migrated to 3G network is likely to rise from the
average of 12 million in 2013 to the average of 20.8 million in 2014 (expected to
reach 24.8 million subscribers at end-2014). Overall, ADVANC's FY2014 net profit
is projected at B39bn, growing 10%yoy.
- 2H13 dividend beyond expectation. Fair value implies 29% upside.
"BUY"
ADVANC's 2H13 dividend is as high as B5.75 (2.8% dividend yield; B0.5 beyond
our expectation). Thanks to low provision on the impairment of a subsidiary DPC
(expiring on 15 September 2014) in the separate financial statement, 2H13
dividend is higher than expected due to accumulated profit in the separate
financial statement ADVANC's fair value of B270 implies 29% upside, with over
6% dividend yield. We reiterate "BUY".