True Corporation

True Corporation Plc (True) 

 

TRUE now has the most bandwidth and the best spectrum mix of all players. Obtaining a 900MHz license will also give TRUE the opportunity to gain share in its weakest market (2G) – which contributes 60% of the entire market’s revenue. We do not believe TRUE will stay in third place for revenue market share (19%) and expect it to be the only one to gain revenue market share, to 22% in 2017 (management targets 30%). Buy with DCF-based TP of Bt12.  

Positive tone: TRUE held a special post auction meeting with analysts yesterday. The tone was positive, with most developments largely in line with us. Key takeaways:  

- Adding 900MHz and 1800MHz gives TRUE the most bandwidth at 55MHz with a good balance between lower and higher bands. The firm is now well-equipped to challenge even leader ADVANC. TRUE has only 19mn subs on its 55MHz while ADVANC has 40mn subs on only 30MHz. This means, assuming all other factors are constant, TRUE can offer speeds that are at least twice as fast as ADVANC.      

- Management sees the addition of 900MHz as more value accretive for TRUE than for peers as this spectrum gives it strength in its weakest area – the prepaid market. TRUE says there are about 12-15mn users on 2G connected to the 900MHz network, most of which are prepaid. It calculates that these subs generate revenue of ~Bt20bn a year. The successful acquisition of 900MHz makes it possible for TRUE to eliminate its weak point by strengthening its 2G presence. Currently, it has a 13% revenue market share of prepaid users (vs. 28% in postpaid). TRUE plans to rent 2G equipment on 900MHz from TOT and start offering 2G service very soon.     

 In order to tap all market segments, TRUE will allocate 2.5MHz on 900MHz for 2G, 20MHz on 850MHz and 2100MHz for 3G and 32.5MHz on 900MHz, 1800MHz and 2100MHz for 4G. 

- With superior spectra and bandwidth, TRUE is aiming at a revenue market share of 30% within three years, five years at most.  

 It roughly estimates total capex at Bt55bn for investing in all spectra for the next three years. Most capex will be in form of vendor financing. 

- TRUE has several avenues by which it can pay for its license, including cash from operations or divestment of DIF. It says a cash call is the last choice.    

- Maintain buy with DCF-based TP of Bt12. We assume TRUE will be the only one able to increase revenue market share, rising to 22% in 2017 from 19% as of 3Q15, as it has most bandwidth and the best spectrum mix. We prefer to leave achievement of its own goal of 30% revenue market share in 3-5 years as upside. The cost of the license will put TRUE back in the red in 2016, but gains in revenue market share will swing earnings back up from 2017. Share price catalyst would be a clear signal on whether or not it will make a cash call. We maintain Buy with DCF-based TP of 12.