Advanced Info Service
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Good profit projected in 4Q14 and 2015 BUY
Advanced Info Service Plc (ADVANC)
- 3Q14 profit rebounds as projected
ADVANC announced 3Q14 net profit at B8.96bn or the growth of 5.7%qoq
(+7.4%yoy), recovering from the prior quarter as projected. Excluding an
extraordinary expense of B74m (net impairment of assets after FX gain),
normalized profit grew 2.9%qoq (+5.4%yoy) to B9.0bn, thanks to a 1.6%qoq
decrease in cost of service (IC excluded) since the increasing cost of network
and depreciation expense from accelerating investment on 3G network
coverage expansion to 97% nationwide were negated by a 14.9%qoq
decrease in regulatory cost (see page 2). Moreover, selling and administrative
expense declined 7.8%qoq mainly because advertising cost lowered from
2Q14, which was 2014 World Cup period. The decreasing cost helped
compensate for service revenue (IC excluded) that decreased 0.7%qoq
(+1.5%yoy) in 3Q14 as a result of a low season.
- Good profit projected in 4Q14 and 2015
We project ADVANC’s profit to continue improving in 4Q14 due to seasonal
effect (boosting revenue). A decrease in regulatory cost from 25% to 5.25%
of total revenue after subscriber migration from 2G to 3G (by the end of the
year, the proportion of 3G subscribers is projected to increase to 90% of total
subscribers, from 88% in 3Q14) and increasing number of 3G-supported
smartphone users (resulting in less dependency on 2G network) would offset
an increase in marketing expense during the high season and rising cost of
network from capacity expansion in high usage intensity areas. 9M14 profit
accounts for 74% of FY2014 forecast; we maintain our forecast, projecting the
profit to stabilize yoy at B36bn in 2014 and grow 15% in 2015 owing to rising
revenue following the economic rebound, decreasing regulatory cost for a full
year, and a benefit from the company’s stopping recognizing amortization
expense for 2G equipment since September 15, 2015.
- Fair value provides 20% upside
We have switched to use 2015 fair value of B285 (DCF, 8.9% WACC, 2%
terminal growth), which implies as much as 19.7% upside. Dividend yield can
be expected at 5-6% p.a. on average. BUY is reiterated.
