True Corporation

True Corp. Plc

 

- TRUE is forging ahead with a steady gain in revenue market share and will ease back on marketing after strong gains in users in 1H15, thus expanding EBITDA margin. We expect core profit of at least Bt1bn in 3Q15 with 2015 core profit of Bt4.2bn. Buy with DCF-based PT of Bt17.  

Company positive, lines up with SCBS. The overall tone at TRUE’s analyst meeting was positive, with most developments largely in line with us. Key takeaways:  

-TRUE maintains its bullish and ambitious guidance of high single digital revenue growth in 2015 driven by steady gains in market share. It intends to achieve 30% revenue market share within the next five years from 18.8% at end-2Q15.  

- TRUE will play off its strength as Thailand’s leader in 4G. Currently it has ~1.5mn 4G subscribers - but 2.1mn of its subscribers have 4G handsets. Since more have 4G-ready handsets than have signed on for 4G, TRUE does not believe it will be difficult to convert them - and more 4G means higher ARPU.    

- Management stands by its commitment to cost control. It says the 1H15 surge in marketing expense of 34% YoY was aimed at signing on more users. This was successful and it will now cut back on marketing. It expects a YoY fall in marketing expense in 2H15 with no disruption in revenue growth. It was able to do this in the past – on a YoY basis, in 2H14 marketing expense fell without revenue growth disruption. This implies EBITDA margin in 2H15 will improve from 1H15. Long-term EBITDA margin target for the firm remains intact, rising by 5% for the next five years to 30% from 15% in 2014.     

- TRUE is not expecting a price war since it does not see anyone benefiting from such a move. This happened once before, in 2006, led by TRUE when it slashed prices in an attempt to gain market share. ADVANC and DTAC followed suit and in the end, all were losers: TRUE did not gain in market share and all lost revenue. Lesson learned: though DTAC has lost market share to TRUE, it is refraining from cutthroat pricing.  

- TRUE thinks there is a chance the auction will take place this year. However, it does see an obstacle to the auction in the form of a possible lawsuit from TOT/CAT to reclaim the spectrum on 1800MHz and 900MHz being put up for auction. This has the potential to delay or even abort an auction.  

Core profit to continue into 2H15 with profit for 2015. We expect TRUE to post a core profit of Bt1bn or more in 3Q15, driven by accelerating revenue growth in its mobile business and aided by cost control. We maintain our full-year forecast of Bt4.2bn, turning around from a big loss in 2014, then doubling to Bt10bn in 2016.