Total Access Communication

Total Access Communication Plc (DTAC)

 

- Low season, higher cost weakening 2Q15 profit 

Profit is not likely to rebound in 2Q15. Service revenue (IC excluded) is expected to slip 0.5%qoq and 4%yoy due to low season (despite network improvement, new data service package for new subscribers (replacing limited internet usage with extra charge for excess internet usage) has not been well-received while the rivals have not changed the package). Cost of service is projected to increase by 1.6%qoq as a result of additional investment in fixing network problem in 2H14. Regulatory cost is not likely to drop much since the number of subscribers migrated from 2G network concession (30% regulatory cost) to 3G network license (5.25% regulatory cost) is expected to rise from 82.6% at end 1Q15 to only 85% at end 2Q15. SG&A is projected to increase by 5.7%qoq due to aggressive advertisement since DTAC has been trying to fix its negative image of having poor network. Overall, DTAC's 2Q15 earnings are estimated at B1.85bn, falling 19%qoq and 37%yoy. 

- Profit to rebound in 2H15 

1H15 profit is expected to make up 48% of our forecast. DTAC would invest more in network development in 2H15 (expanding its 3G coverage to 95% of Thailand's area by the end of this year and aiming to surpass TRUE and become the No.1 4G operator; DTAC will use 10 MHz of bandwidth on the 1800 MHz spectrum to increase its 4G network bandwidth from 5 MHz to 15 MHz (versus TRUE's 4G network bandwidth of 10 MHz)), which means increasing cost. However, network improvement and the economic rebound in 2H15 would boost DTAC's revenue both qoq and yoy, so 2H15 earnings is projected to increase from 1H15 and the weak base in 2H14 (the network problem started in 3Q14). Overall, we maintain DTAC's earnings forecast at B8.2bn, down 23%yoy. 

- Not a good time for DTAC. HOLD 

Although the share price has considerably absorbed the negative factors already, it still has a limited upside. We reiterate HOLD for 4% average yield, waiting to see improvement. DTAC announced 2Q15 dividend payment at B0.72 (0.8% dividend yield).