Intouch Holdings

Intouch Holdings Plc (INTUCH) 

Investment thesis 

We like INTUCH as our second-top pick of ICT sector stocks thanks to its discounted valuation, attractive dividend yield of 6% for FY15, the solid FY15-16 earnings growth profile of subsidiaries ADVANC and THCOM and the scope for upsides if ADVANC wins new bandwidth at the NBTC auctions in 2H15 (1800MHz) and 1H16 (900MHz). It is also attractive for its fixed broadband business (FBB) and THCOM’s potentially greater bandwidth sales of Thaicom 6 (in Africa), IPSTAR (in India, Philippines, Indonesia, Malaysia and Australia) and presales of Thaicom 8 ahead of its launch in 1H16. INTUCH’s current share price implies a 22% discount to our DCF-based Net Asset Value (NAV). 

Insights into 4Q14—a strong core profit rise YoY

We estimate a Bt3.83bn 4Q14 net profit for INTUCH, up by 10% YoY and 1% QoQ. Excluding extra items—FX, an impairment for ITV and a proportional equipment write-off for ADVANC—its core earnings would be Bt4.03bn, up by 7% YoY and 3% QoQ. The assumed strong YoY core profit rise will be led by ADVANC and THCOM. 

For ADVANC, we estimate Bt9.64bn in core earnings for 4Q14, up by 3% YoY and 7% QoQ, led by service income growth and a QoQ decline in OPEX—regulatory costs; network OPEX; and general, administrative and bad-debt expenses. We assume service income (excluding IC) in 4Q14 to rise 3% YoY and 2% QoQ—representing the third straight quarter of YoY increases. Nonvoice revenue is expected to expand 40% YoY and 5% QoQ, outweighing the effect of fewer voice receipts. For details, please see our ADVANC report, Feb 2, 2015.

For THCOM, we estimate a Bt400m core profit for 4Q14, up by 14% YoY but down by 15% QoQ. The assumed YoY core profit rise is driven by revenue from Thaicom 6, starting Feb 2014, greater bandwidth sales to NBN Co Ltd related to its capacity upgrade and the bandwidth deployment to an additional 9,000 users and greater earnings from Lao Telecom. For details, please see our THCOM report, Jan 28, 2015.

Upsides—4G auctions, fixed broadband, Thaicom 6, 8 and IPSTAR 

ADVANC’s aggressive expansion into FBB is one of its three focuses during 2015-20 to compete directly with JAS, TRUE and TOT, apart from the continuous 3G network expansion and the planned 4G auctions as well as further extension into digital life services. It aims to build last-mile cables to connect to 10m home passes by 2020 from 120k km of fiber-optic cable. 

For THCOM, we expect Thaicom 7’s actual usage to grow from 20% in 1Q15 to 100% in 2H15 and estimate Thaicom 8 to achieve presales of 50% by YE15 before its launch in 1H16. The sale of Thaicom 6’s remaining capacity to Africa remains a challenge, but it will push IPSTAR bandwidth sales in India, Philippines and Indonesia in 2H15.