Intuch Holding

Good profit in 4Q14 and 2015 BUY

Intuch Holding Plc (INTUCH)

- 3Q14 profit recovers following ADVANC’s

INTUCH announced 3Q14 net profit at B3.7bn, growing 8.0%qoq. Shared profit

from ADVANC (INTUCH holds 40.45% stake) rose following a 5.7%qoq rebound in

the subsidiary’s net profit due to a decrease in regulatory cost from 25% (2G) to

5.25% (3G) of total revenue as the portion of subscribers migrated from 2G to 3G

increased from 80% of total subscribers in 2Q14 to 88% in 3Q14. Moreover, selling

and administrative expense of ADVANC declined from high base in 2Q14, which was

2014 World Cup period, thus compensating for rising cost from 3G network

expansion and weak revenue from a low season. On the other hand, net profit of

THCOM, another subsidiary (INTUCH holds 41.14% stake, financial statement

consolidated) dropped 44%qoq because there was impairment loss from the Yellow

Pages business of CSL, THCOM’s associated company, and cost of operation

increased at a faster pace than revenue (due to cost from installation of devices on

aircrafts for providing an Internet access on planes and allowance for doubtful

accounts and obsolete inventories).

- Good profit in 4Q14 and 2015

We project INTUCH’s profit in 4Q14 to grow from 3Q14 due to good profit from

ADVANC, which is entering a high season of the business and will benefit from a

further decrease in regulatory cost as the portion of 3G subscribers will be over

90% of total subscribers by the end of the year. At the same time, profit of THCOM

would improve from 3Q14, mainly because the company will not have to make

provision for impairment loss of the associated company like it did in 3Q14 (albeit a

slight adverse effect from an operation of Thaicom 7 satellite since the average

capacity use may be lower than the breakeven point of 45% because most of the

current capacity booking of as much as 50% are of the clients migrated from

Thaicom 5). THCOM’s earnings forecast revision (after the earnings report) will have

insignificant impact on INTUCH’s earnings (over 95% of INTUCH’s profit is from

ADVANC). Therefore, we maintain our forecast for the profit of B14.7bn in FY2014,

stabilizing yoy, and project to see 17% growth in FY2015. Supporting factors are

ADVANC’s higher revenue as a result of the economic rebound and full-year benefit

from lower regulatory cost and THCOM’s full-year benefit from Thaicom7.

- High upside, dividend yield above 6% p.a.

2015 fair value is B113 (derived by NAV method based on ADVANC’s fair value of

B285 and THCOM’s fair value of B51), implying 53.2% upside. Dividend yield can be

expected above 6.0% p.a. We reiterate BUY.