Total Access Communication
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Forecast cut likely. 2015 fair value provides upside
Total Access Communication Plc (DTAC)
3Q14 profit might turn out disappointing as a result of fierce competition. We are
likely to revise down our forecast after 3Q14 earnings report. However, we will also
switch to use 2015 fair value after the earnings report; at least 17% upside can be
expected. Buy.
- Fierce competition to suppress profit recovery in 3Q14
DTAC’s earnings in 3Q14 might turn out worse than expected due to fierce
competition in the industry, especially a low price promotion of ADVANC to
claim back the market share it had lost when its 3G network had not been
ready, and aggressive promotion of TRUE. Accordingly, service revenue (IC
excluded) in 3Q14 would not revive but stay at B17bn. Moreover, selling
and administrative expense is projected to increase 6.2%qoq from
increasing expenses on promotional campaign and advertising in order to
maintain the subscriber base. Cost of service (IC excluded) is projected to
stabilize from 2Q14; rising cost from 3G network investment will be negated
by a 6.1% decrease in regulatory cost since the number of 3G subscribers
will increase from 19.1 million at end-2Q14 to 22.0 million (regulatory cost
under a 3G-2.1 GHz license is 5.25% of revenue, versus 30% of revenue
under a 2G license). Overall, 3Q14 profit would drop 5.1%qoq to B2.8bn
(staying flat yoy).
- Forecast cut likely after earnings report
We are convinced that DTAC’s profit would rebound in 4Q14; revenue is
projected to increase, thanks to a high season and new subscribers from
iPhone 6 launch in this quarter. Cost of service is projected to decrease;
DTAC would benefit from lower regulatory cost from additional migration of
subscribers to the new 3G network. Since profit in 3Q14 would remain dull,
9M14 profit would represent only 69% of our forecast. Accordingly, we are
likely to revise down our forecast after 3Q14 earnings report. Preliminarily,
however, we project to see the profit growth of above 15% in FY2014 and
10% in FY2015.
- 2015 fair value provides upside. Buy
2014 fair value under the new forecast is estimated at B115, providing a
limited upside. However, we will switch to use 2015 fair value of B122 after
3Q14 earnings declaration, which still provides a 19% upside. In addition,
dividend yield can be expected above 6% p.a. Buy.
