Advanced Info Service

Advanced Info Service Plc (ADVANC)

 

Investment thesis

Despite anticipated intense mobile competition from new player JAS and the loss of 900MHz spectrum to its rivals, ADVANC fundamentals remain intact given its strong sales and marketing teams, its 4G nationwide coverage on the 3G-2100MHz network fully in place, its 1800MHz spectrum and its soon-to-be-announced collaboration with TOT to use the 2100MHz spectrum. Despite expected further FY16 earnings cuts, its FY16 dividend yield of 7.3% is attractively high. We recommend accumulating on its share-price weakness.  

Bt7bn handset subsidy for 2G handset subscribers 

The company’s CEO said during a conference call that it was not feasible to acquire the 900MHz license at a price exceeding Bt75bn considering all scenarios. It would be more worthwhile to spend such amounts on 4G network via the 1800MHz and 2100MHz spectrums, fixed broadband assets and maintenance of its remaining 1m 900MHz-2G subscribers and 11m 2100MHz-3G subscribers using 2G handsets (the latter accounts for less than 15% of total revenue), he said. 

It will use handset subsidies worth Bt7bn to push the latter to change their handsets. The firm is confident that it can migrate all of these customer groups to its network, and believes the NBTC will extend the 900MHz spectrum remedy period for 90 days. However, it remains uncertain whether the NBTC will extend the remedy period and the firm will migrate these 2G handset users within 90 days. Assuming that ADVANC books a Bt7bn handset subsidy cost and sees the boost of Bt3bn in revenue from pushing those clients to use higher data, we have cut our FY16 earnings forecast Bt4bn to Bt33.5bn (or by 11%). 

Nationwide coverage for 4G is of little concern

Its 3-5 year collaboration plan to use TOT’s 2100Mz spectrum (which has already been approved by TOT’s board) and the 4G service launch on 1800MHz spectrum in Jan 2016 will make the most efficient use of its existing spectrums. It confirms that its soon-to-be-announced partnership deal with TOT does not require the cabinet approval. It is confident about building a 4G network in rural areas quickly given that its 4G-ready small cells have already been installed on its 3G-2100GHz network and it has little concern over 4G nationwide coverage even if it fails to win the 900MHz spectrum. Management remains confident that some 850MHz spectrum will be up for auction in 2018, although there is speculation that it will be returned to the State Railway of Thailand.

Partnership deal with TOT secures use of latter’s assets 

Regarding its soon-to-be-announced MVNO model (such as BFKT) with TOT, ADVANC will build and buy 80% of the MVNO capacity (the remainder will be open to others (such as SIM and JAS). Its upcoming partnership deal with TOT will include the latter’s spectrum, towers and 2G equipment and its fiber optics. JAS can use the remaining capacity only if it becomes available.