Advanced Info Service

Advanced Info Service Plc (ADVANC)

What’s new?

ADVANC announced that it will launch a fixed-line broadband operation. Management claims that the fixed broadband penetration rate is currently low at 24% (4.8m households) and forecasts that it will rise to 6.8m households in 2018.

For the first phase, ADVANC plans to invest up to Bt4.6bn in core and access network with capacity of 1m homepasses and last-mile cabling to serve 300k subscribers. The investment will start in FY15 at Bt1bn to serve a capacity of 250k homepasses. During the first year; ADVANC targets 80k subscribers initially. The timing and the scale of the remaining CAPEX depends on the success of the rollout and subscriber acquisition.     

Core transmission and sales centers already in place

ADVANC already has a nationwide transmission backbone from which to roll out fixed broadband, so its chief engineering CAPEX will be adding new nodes and “last-mile” cabling (the “last mile” for data is about one kilometer). Moreover, its existing AIS sales points can start selling fixed broadband. ADVANC aims to offer bundled fixed-plus-mobile broadband packages. 

Only negligible initial financial impact

The initial scale of the fixed broadband business will be small, targeting subs only in Bangkok and major provincial cities within 1,000 meters of existing nodes. Assuming cumulative broadband subscribers of 80k in FY15, 200k in FY16 and 300k in FY17 and ARPU for the broadband business of Bt620/month/sub in FY15, Bt610/month/sub in FY16 and Bt600/month/sub in FY17, we estimate incremental revenue of Bt595m in FY15, Bt1.1bn in FY16, and Bt1.8bn in FY17.

Modeling for a net margin of 30% for the broadband business (compared with our TTTBB estimated NM range of 26-29%, FY14-16), net profit would increase by Bt179m for FY15 (0.4% extra to FY15), Bt329m for FY16 (0.7% extra to FY16) and Bt540m for FY17 (1.1% extra to FY17). We have not yet factored this business into our model. If ADVANC were to achieve significantly faster subscribership growth than we currently assume, the addition to earnings could be greater.

Our BUY rating stands, premised on a service income recovery in 4Q14 onward, greater regulatory cost savings under the 3G-2.1GHz licensing regime and scope for upside from new radio bandwidth auctioning, expected in July 2015. Note that we have rolled over our target price to YE15 and derived a new target price of Bt260.