Intouch Holdings

Intouch Holdings Plc (INTUCH) 

 

Investment thesis 

INTUCH remains our No. 2 pick of the ICT sector, on a 6% dividend yield, discounted valuation and scope for upside from ADVANC’s 4G licenses. We recommend that investors reload INTUCH, as a holding company owning a 40.5% stake in ADVANC, ahead of the 1800MHz and 900MHz auctions in November, in which we assume that ADVANC will win each of the 1800MHz and 900MHz licenses. ADVANC and INTUCH prices rose six months ahead of the 3G-2.1GHz auctions in 4Q12 and the latter’s holding discount to its market price-based Net Asset Value (NAV) narrowed to only 13% in 2012 (against its normal 20%). Its current price implies 18% and 26% discounts to the market-price-based and DCF-based NAV, respectively. If a 13% holding discount were applied, its share price should be trading at Bt86 now. 

Insights into 2Q15—a strong YoY core profit rise

We estimate a Bt3.90bn 2Q15 net profit for INTUCH, up 11% YoY but down 5% QoQ. Excluding extra items—FX, an impairment for ITV, THCOM’s gain from the partial sale of its stake in Synertone and a proportional equipment write-off for ADVANC—its core earnings would be Bt4.05bn, up 8% YoY but down 4% QoQ. The estimated strong YoY core profit rise will be underpinned by ADVANC and THCOM. 

For ADVANC, we estimate Bt9.37bn core earnings for 2Q15, up 7% YoY (but down 6% QoQ), led by stronger service income and lower regulatory costs outweighing OPEX rises. Its service income (excl. IC) in 2Q15 will rise 2.7% YoY and 0.3% QoQ—the fifth straight quarter of YoY rises. Please see details in ADVANC report on June 26, 2015. 

For THCOM, we estimate a Bt520m core profit for 2Q15, up slightly 2% YoY and 12% QoQ. The YoY modest core profit rise is driven by the Thaicom 7’s revenue recognition starting in November 2014, a greater IPSTAR user terminal sale to NBN Australia and higher LTC earnings. Please see details in the THCOM report dated July 13, 2015.

Greater conviction on 4G auctions in November 

We believe that the 4G auctions are now more visible than before, given the strong support from the government to push both 1800MHz and 900MHz licenses to auction on the same date, November 11, and the NBTC’s public hearings on both spectrums in July-August. The public hearing on the Information Memorandum for the 1800MHz auctions will be held in Bangkok on August 3, while that for the 900MHz in Bangkok is slated for August 11. We assume that ADVANC will be a potential winner of two 4G licenses—each one being 15x2MHz 1800MHz and 10x2MHz 900MHz licenses—which will provide scope for revenue upside from data subscribers and ARPU increases, improved 3G/4G network quality and efficiency and cost reduction (lower OPEX and CAPEX) from the acquisition of two new spectrums.