True Corp. Plc

True Corp. Plc 

 

TRUE’s network has been strengthened by the win of the 1800MHz license, which will allow TRUE to double its 4G speed - and stay ahead of peers in terms of speed because of its greater bandwidth. This in turn gives better network quality – vital if it is to achieve its revenue market share goal. We see a good chance for further re-rating of share price from this level. Last quarter’s higher marketing expense has been factored into our forecasts, leading to some reduction, but DCF-based TP is unchanged. TRUE, in our view, is getting up speed for an earnings growth cycle. Buy TP of Bt16.2.       

Positive tone. The overall tone at TRUE’s analyst meeting yesterday mornings was positive, with most developments largely in line with us. Key takeaways:  

 

The firm believes the mobile business is a “scale game” and that the Thai mobile market is moving from voice to basic data and then on to high-speed data. The acquisition of more spectra puts it solidly on track to achieve its goal of a revenue market share of 30% within five years. It believes this is the level that will give it optimal economies of scale and an EBITDA close to other players at 30-35%. The 1800MHz license allows TRUE to stay the leader in high speed data on 4G. 10MHz of 1800MHz spectrum will be allocated to serve 4G customers and the remaining (5MHz) will be employed to serve its 2G subscribers, now fewer than 1mn. This gives TRUE combined spectra of 20MHz (10MHz from 2100MHz and 10MHz from 1800MHz) for 4G, the highest of all. Upload/download speed will double from the 4G now available from TRUE and faster than peers.      

 

TRUE declined to comment on its capex and plan for the 1800MHz rollout at this stage, preferring to wait for the completion of the 900MHz auction. It did indicate that network capex will not burden short-term cash flow, as it will be financed by network vendors and payment can be spread out over five years.  

 

Financial status: It has no debt covenant after paying off all bank loans in 4Q14. Internally, TRUE does not want net debt to EBITDA ratio to go beyond 2x. The firm needs to discuss this ratio with the board again following the auctions.   

 

Downgrade earnings but maintain DCF-based TP of Bt16.2. We revised down earnings from Bt4.2bn to Bt904mn in 2015 and Bt8.5bn to Bt5bn in 2016 to incorporate the higher marketing expenses than anticipated. Forecasts for 2017 and beyond are unchanged. Since we adopt DCF approach to value the company, our TP is unaffected by the change in two forecast years and we keep it unchanged at Bt16.2. We maintain our bullish view on TRUE with a Buy rating as we expect revenue market share to rise to 22% in 2017 from 19.6% as of 3Q15. We see a good chance TRUE will be able to expand revenue market share beyond our assumption of 22%, as the mobile market is moving toward 3G and 4G services, where TRUE has a superior platform.