True Corp.

True Corp. Plc (TRUE) 

 

TRUE is, in our view, holds primacy as the growth stock in its sector as it gets back into the black this year, followed by sharp profit growth for the following two years as it grabs more revenue market share. 3Q15 is expected to be another profitable quarter but core profit might be slimmer than we estimate. We may revise our forecast down slightly this year but we see this as a simple earnings hiccup not a fundamental change and maintain our 2016 bullish earnings estimates. Buy at target price of Bt17. 

 

Preview of 3Q15. We talked to management, whose overall tone was positive and in line with our estimates. Takeaways are summarized below: 

 

1) On the revenue side, the positive momentum continues, with growth both YoY and QoQ. This is underpinned by the mobile business as it steadily gains revenue market share from 2Q15’s 18.8%. Revenue from the online and TV businesses will be flat from 2Q15 but grow YoY. Fixed broadband is the major driver for online business and rising ad revenue from digital TV is the key driver for its TV business.  

 

2) On the cost side, most operating costs are stable from 2Q15 including network opex after it completed its 4G rollout to cover 80% of the population in April. The only costs up QoQ in 3Q15 are selling and marketing expenses – necessary to further strengthen its market position in 3G and 4G.    

 

3) It may book an extra gain of ~Bt900mn from transferring ~900 towers to DIF.    

 

4) As TRUE is paying equipment suppliers in US dollars, the weaker baht in 3Q15 will give it a FX loss – but TRUE says it is fully hedged against FX exposure and is in the process of consulting with its auditor as to whether it should recognize the hedging. If it can, TRUE will not need to book FX loss in the quarter.  

 

We expect Bt1.4bn in 3Q15, turning from a loss in 2Q14 and up 9% QoQ. This includes extra gain of Bt900mn from transferring towers into DIF, but we have not incorporated the possible FX loss in this estimate. Stripping out extra items puts our core profit estimate at Bt521mn, close to 2Q15 and 1Q15 but a sharp turnaround from the loss of Bt624mn in 3Q14. The key to the growth is growing revenue provided by a continued gain in revenue market share in the mobile business. If 3Q15 profit is as expected, 9M15 core earnings will account for 38% of our full-year estimate. We might need to bring our 2015 forecast down slightly from Bt4.2bn, revising selling and marketing expense. But we will leave our 2016 bullish earnings forecast unchanged as we believe this expense will subside next year. Its strength in 3G and 4G will allow TRUE to gradually cut some selling and marketing expenses. 

 

Buy with unchanged DCF-based target price of Bt17. We maintain our Buy as we believe TRUE is on track to gain greater revenue market share in spite of the coming auctions for 1800MHz and 900MHz licenses. TRUE’s focus now is on grabbing market share in the prepaid segment, which is not directly related to the auction.