ICT

ICT 

 

Investment thesis

Although the 900MHz bidding price is likely to be chased up wildly as was the case with the 1800MHz auction, we believe that the market has already expected this outcome. Hence, the tumble in mobile share prices following the 1800MHz auction presents good timing to accumulate mobile stocks on the dividend yield support of a 6-7.5% range. We think that the excessive prices at auctions were the only short-term negative and the market should focus on the post-auction climate, in which we believe ADVANC would emerge as the data market leader after securing both 1800MHz and 900MHz licenses. INTUCH is our second favorite (as a holding company owning stakes in ADVANC), followed by DTAC which is too oversold.   

Expect wildly inflated 900MHz auction price 

We assume a Bt38bn ending auction price for the 900MHz license for ADVANC, DTAC and TRUE and incremental 900MHz license values of Bt3.80/share, Bt4.80/share and Bt0.50/share for ADVANC, DTAC and TRUE, respectively. Although the reserve price of each 2x10MHz/900MHz license is 19% lower than the 2x15MHz /1800MHz license (Bt12,864m against Bt15,912m) due to the lower amount of bandwidth per license up for auction (2x10MHz for one 900MHz license and 2x15MHz for one 1800MHz license), we believe that the ending 900MHz auction price will fall in a Bt40-48bn range, led by heavier price competition than the 1800MHz auction (at least three are eager to acquire two licenses). 

Our sensitivity analysis indicates that if the 900MHz ending price exceeds Bt49,200m, the incremental value from a 900MHz license will be negative. For every 5% change in the 900MHz auction price (or Bt1.9bn), it will impact the 900MHz values of three operators by 17%—Bt0.64/share (for ADVANC), Bt0.80/share (for DTAC) and Bt0.08/share (for TRUE). We assume that ADVANC and DTAC will eventually win the 900MHz licenses.

ADVANC—profit will see least impact in FY16

ADVANC’s FY16 net profit will experience the least impact from the 4G expenses due to the cost saving from the absence of 2G network amortization expense from 4Q15, which will partly offset the rises in 4G-related expenses (annual license fee, spectrum fee amortization, network depreciation). We estimate its FY16 net profit will manage to rise 5% YoY assuming it wins both 1800MHz and 900MHz licenses. However, we estimate that DTAC’s FY16 net profit will drop 11% YoY, assuming that it wins the 900MHz license and TRUE’s FY16 net profit will tumble 82% YoY after the acquisition of its 1800MHz license. This is based on the 900MHz auction price of Bt38bn. Our sensitivity analysis indicates that if the 900MHz auction price increases 5%, it will reduce our FY16 net profit forecast 0.4% (for ADVANC), by 2.1% (for DTAC) and by 17% (for TRUE).   

Yield supports of 6-7.5%

As almost all 4G CAPEX (spectrum fee and network investment) for all license bidders are funded by new debt, we then expect both ADVANC and DTAC to maintain their existing dividend payout of at least 100% of its consolidated net profit. The FY16 dividend yields are highly attractive now. At the current price level and post-4G FY16 earnings, INTUCH offers the highest dividend yield of 7.5%, followed by ADVANC (7%) and DTAC (6%).