Total Access Communication
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Profit to grow from now on BUY
Total Access Communication Plc (DTAC)
- 3Q14 profit lower than expected due to low service income
3Q14 net profit was reported at B2.6bn, dropping 13%qoq (8.5% below
projection). Service income (excluding IC) plunged by 4.1%qoq (possibly
due to inferior network system compared with rivals), negating 3%qoq
decrease in cost of service and operation (still 2.4% better than expected).
3Q14 regulatory cost dropped by 8.5%qoq; the number of subscribers
migrated from 2G spectrum (30% regulatory cost) to 3G spectrum (5.25%
regulatory cost) increased from 68.1% of total subscribers in 2Q14 to
71.1% in 3Q14. The number of mobile phones compatible with 3G network
increased from 37% of total phones in 2Q14 to 41.2% in 3Q14, so DTAC
depended less of 2G network. In addition, SG&A decreased by 13%qoq
thanks to lower provision on personnel bonus and bad debt.
- Revise down FY2014-2015 earnings forecast by 14%p.a.
4Q14 profit is expected to grow because it is a high season and iPHONE6
will be sold for the first quarter. The number of 3G subscribers and mobile
phones compatible with 3G network is expected to increase, lowering
regulatory cost at the same pace at 3Q14. However, DTAC's earnings are
not likely to rebound much because the company would invest B10bn in the
next six months (FY2014 investment expense would be B3bn higher than
our forecast) to improve 3G network and compete against rivals, increasing
and cost depreciation expense on network. 9M14 earnings made up 63% of
our forecast. Thus, we revise down our earnings forecast by 13% in 2014
and 14% in 2015. Under the new forecast, DTAC's profit is estimated to
grow by 8.3%yoy to B11.4bn in 2014 and grow by 10% in 2015; the
recovering economy would boost DTAC's revenue, and a decrease in
regulatory cost would be booked for a full year after DTAC has migrated
76% of its subscribers to 3G spectrum.
- Upside + dividend yield at 17%, still advisable
Under the new forecast, FY2015 fair value (DCF) is B114, implying 17%
upside (dividend yield included). We reiterate BUY. DTAC announced 3Q14
dividend at B1.57/share (1.5% dividend yield); XD date is November 3,
2014.
