FRIDAY, March 29, 2024
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Advanced Info Service

Advanced Info Service

Profit to weaken in 3Q15, strengthen in 4Q15 BUY

Advanced Info Service Plc (ADVANC)  
 
- 2Q15 profit beats projection, thanks to good cost control  
ADVANC announced 2Q15 net profit at B9.8bn, staying flat qoq but rising 16.2%yoy. Excluding extraordinary income of B346m, normalized profit was B9.5bn, decreasing 4.8%qoq but still growing 8.3%yoy, which was 2.1% better than projected. Cost of service (IC excluded) decreased 3.6%qoq, better than expected. Despite ADVANC’s continuous network expansion to keep its 3G service good, the company also managed to keep the cost unchanged from 1Q15. Regulatory cost also decreased 11.4%; the number of subscribers on 3G service who had switched from old model mobile phones to those compatible with 3G network increased from 58% of total subscribers in 1Q15 to 62% in this quarter, thus resulting in lower use of 2G network, which has regulatory cost of 25%. Selling and administrative expense rose 9.6%qoq (mainly advertising expense). Service revenue (IC excluded) dropped 0.5%qoq from a seasonal effect but still increased 1.8%yoy from ADVANC’s advantage of a widest 3G network coverage. 
- Profit to weaken in 3Q15, strengthen in 4Q15  
3Q15 profit is projected to weaken from 2Q15 and possibly be a bottom of the year. As a result of weak domestic purchasing power and fierce competition (especially a provincial campaign of free mobile phones), ADVANC had to adjust its strategy by bearing loss from selling mobile phones at lower prices than their cost (versus 1H15 profit from mobile phone sales) in order to maintain its revenue market share. Accordingly, the loss would negate the benefit from decreasing regulatory cost. However, high profit growth is foreseen in 4Q15; the loss from mobile phone sales would decrease because a new model of iPhone will be introduced in the quarter and it is also a high season of mobile usage. Moreover, 4Q15 is also a first quarter ADVANC does not have to recognize depreciation cost of B3bn/quarter for 2G network equipment (stopping since September 15, 2015). Since 1H15 profit already accounted for 47% of FY2015 forecast, we maintain our full-year profit forecast at B42bn or a growth of 15%. 
- Benefit most from 4G bid. Share price has upside  
ADVANC's profit would remain good in the rest of the year; fair value implies 15.3% upside. Dividend yield can be expected above 5.5% p.a. Additionally, the company will benefit most from the coming 4G bid at the end of the year for it is likely one of the winners, rendering its ability to operate 4G service like peers. We reiterate BUY. 1H15 dividend was announced at B6.5 or a yield of 2.6% (going XD on August 11, 2015). 
 
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