True Corporation

True Corporation Plc (TRUE) 

 

Investment thesis  

Following the analyst meeting, we maintain our positive stance on TRUE’s fundamentals following its recapitalization plan and its aggressive OPEX reduction measures. The cost control will continue in 2H14, despite slightly heavier costs. But the much-improved core operational outlook for FY14-15 has already been priced in by the recent share price rally. Our HOLD rating stands, We have rolled over our target price to YE15 (from YE14) and derived a new target price of Bt8.50.

2Q14 results recap—core number above our estimate 

TRUE reported a Bt1.71bn net loss for 2Q14, shallower by 46% YoY and 144% QoQ. Stripping out extra items in 2Q14—a Bt1.6bn 2G network asset impairment, Bt375m in other extra gains and a Bt116m gain from TRUEIF’s asset revaluation—the core loss would be Bt594m, shallower by 78% YoY but deeper by 84% QoQ. The core number beat our model by 60%. The shallower YoY core loss was led by cost control across True Corp (SG&A declined 7% YoY) and lower interest expenses. The core numbers of all units except True Visions improved YoY, led by True Mobile and True Online (see details in Figure 3). 

Cost control to be continued in 2H14

The firm will control costs further and utilize assets more efficiently in 2H14, but we think that the scale of the YoY reduction won’t be as much as it was in 1H14. The use of handset subsidies depends on the market and competition dynamics but will be more rational. It plans Bt26.5bn CAPEX for both FY14 and FY15. CAPEX will dive to below Bt10bn in FY16. True Move will no longer book 2G asset amortization expenses in 4Q14; the last Bt1.5bn asset amortization will be booked in 3Q14. It has no clue as to what the NBTC’s spectrum fee will be during the one-year temporary period of using the 1800MHz spectrum. 

True Visions’ revenue to be revised down

True Visions’ satellite-platformed concession will end in Sept 2014. The firm has migrated about 95% of its total subscribers to the NBTC-granted pay-TV licensee company. As such, it will need to either invest in new assets under the new licensed company or rent back the BTO assets that it transfers to MCOT following concession expiry. Given the 11% YoY drop in revenue for 1H14, the firm will revise down its FY14 revenue target and revisit its CAPEX numbers for True Visions.

True Mobile’s robust nonvoice revenue guidance maintained

Despite lower YoY growth in True Mobile’s nonvoice income than peers in 1H14, the firm maintains its double-digit nonvoice income growth guidance for FY14, led by sustained strong post-paid nonvoice expansion and heavier marketing for pre-paid nonvoice packages.