Total Access Communication

Total Access Communication Plc (DTAC) 

 

- Investing in 4G network on 1800 MHz concession 

 

Because of previously conservative investment strategy, DTAC's 3G network has lagged behind rivals, thus weakening its service revenue (IC excluded) on a year-on-year basis since 2H14. Although additional B10bn budget was spent on network improvement late last year, service revenue (IC excluded) has not rebounded yet, falling by 3.6%yoy in 1Q15 and continued dropping at the same rate in April (not likely to meet the full-year growth target of 1.6%). Therefore, DTAC changed its strategy, increasing its investment budget from B13bn to B18-20bn this year to expand its 3G coverage and keep up with rivals. At the same time, DTAC will use its 1800 MHz spectrum to provide 4G network and become the No.1 4G operator. Though these strategies would restore good image for the short term, it would give DTAC a disadvantage (in case that both rivals win the 1800 MHz spectrum bids while DTAC fails) because the company would have to pay higher regulatory cost and return the asset to the CAT after the concession ends. 

 

- Revise down FY2015-2016 forecast by 20% on average 

 

To reflect lower-than-expected service revenue and the aforementioned additional investment budget, we revise down DTAC's FY2015-2016 earnings forecast by 20% on average; service revenue growth projection is revised from +1.6% in 2015 and +1.0% in 2016 to -0.5% and +4% (rising in 2016 thanks to 4G network improvement), respectively, and additional investment in 4G network on 1800 MHz concession and increasing revenue from the investment would be recognized from 4Q15 on (the NBTC's approval is projected in 3Q15, and the investment is expected to start in 4Q15). Under the new forecast, DTAC's net profit is projected to drop by 23% to B8.2bn in 2015, but then climb by only 4.5% in 2016. Rising revenue would be negated by increasing depreciation cost from investment in 1800 MHz concession, which will expire in September 15, 2018. 

 

- Limited upside. Switch to ADVANC 

 

Under the new forecast, the fair value is revised down from B97 to B92, implying a limited upside. We recommend HOLD for 4%p.a dividend yield, waiting for its earnings to rebound. We also recommend switching to ADVANC(FV@B285) for potential profit growth.