Advanced Info Service
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Positive sentiment, strong profit BUY
Advanced Info Service Plc (ADVANC)
- High revenue in high season, low cost to boost 4Q14 profit
4Q14 profit is likely to be strong thanks to the following contributions: 1)
Service income (IC excluded) is expected to grow by 1.4%qoq to B29bn thanks
to high season and superior 3G network. 2) 4Q14 cost of service (IC excluded)
is projected to drop by 1.9%qoq to B13.1bn. Regulatory cost to service revenue
(IC excluded) ratio is expected to decrease from 15.6% in 3Q14 to 14% in
4Q14 (see page 2) and negate depreciation cost and expense from network
expansion in high-elevation areas. These two contributions are projected to
compensate for 6.1%qoq rise in SG&A as a result of normally high
advertisement expense in the fourth quarter. Overall, 4Q14 ADVANC's profit is
estimated to grow by 5.3%qoq to B9.4bn. FY2014 earnings are projected at
B36bn, staying flat from 2013.
- Profit to grow 15% in 2015
Profit is projected to grow in 2015 because the economic recovery would boost
service revenue from the weak base in 2014 (the five-year smallest growth of
1% is projected in 2014 due to the political unrest). Regulatory cost have
decreased for a full year as most of the subscribers have been migrated from
2G network (25% regulatory cost) to 3G network (5.25% regulatory cost); 3G
subscribers are expected to make up over 90% of total subscribers by the end
of this year. In addition, ADVANC would stop recognizing amortization cost for
900 MHz 2G equipment after the concession ends on September 15, 2015, thus
reducing ADVANC's expense by B2.5bn/quarter. Overall, FY2015 net profit is
estimated to rebound by 15% to B42bn.
- To outperform SET due to strong profit from 4G network bid
The government has promised that the 1800 and 900 MHz spectrum bid in
2016. ADVANC is projected to benefit most from the bid. If it wins the 1800
MHz spectrum, it would be able to operate 4G network like DTAC and TRUE; if it
wins the 900 MHz spectrum, it would still be able to operate 2G network for
subscribers who have not been migrated to 3G. Thanks to strong profit growth
and positive sentiment from the bid, ADVANC is likely to outperform the SET.
With strong fundamental factors and high upside, we reiterate BUY; 2H14
dividend is expected at B6.2 (2.6% dividend yield) after earnings report.
