True Corp.

True Corp. Plc 

 

TRUE has removed some of the concerns about the financing for its new licenses by the announcement of a capital increase via rights offering (RO) in order to lighten the debt financing load. Following the cash call, net debt to EBITDA will go back to industry norm at less than 2x. We maintain our Buy call on TRUE despite the dilution: our new TP incorporating the RO is far above current price but more importantly, our call is based on its ongoing gain in revenue market share.   

 

Conference call: Positive tone regarding the capital call. Key takeaways:  

 

- At the board meeting, representatives from CP group and China Mobile agreed to raise capital via issuing 15K new shares, the maximum allowed based on TRUE’s par value. The number of shares issued could be lower if the new shares end up being priced above par. Management expects the capital call to bring in Bt60bn. 

 

- Two-thirds of this funding (~Bt40bn) will be used to repay short-term debt taken out in 4Q15 to take part in the auction. The remaining (Bt20bn) will be used for business expansion. Following debt repayment, long-term net debt to EBITDA will be less than 2x, giving TRUE access to low-cost debt.     

 

- Speaking to its 900MHz expansion plan, TRUE targets 80% 2G coverage by mid-March and 98% by mid-May, with installment of all new equipment.   

 

 TRUE has discussed with the NBTC what would happen should JAS default on its first payment. One option discussed was that the NBTC would conduct the auction and give TRUE a refund for the difference between what it paid and what the winner of the new auction would pay. This is only one of several possible scenarios; TRUE expects more clarity before March 21, the deadline for the 900MHz payment.  

 

- TRUE will make its 900MHz license payment regardless of what happens with JAS. Once payment has been made, the NBTC is expected to shut down all operations on 900MHz on both blocks (TRUE’s and JAS’), as it did for the 1800MHz auction last November. This means ADVANC has no grace period to move its subscribers.    

 

Dilution less than our initial estimate. We are more positive on the capital call after the conference call. The share dilution from raising capital will be 28-30%, below our initial estimate at 38%, based on our assumption that TRUE’s average trading price during March 3-30 will be Bt6.45-7.10. The value dilution to our target will be less at 13-15% (from 20% initially).     

 

Reiterate Buy. We recommend those holding TRUE shares to subscribe to the rights offering to both mitigate the dilution impact and to benefit from the rising revenue market share. Our new target price to incorporate the dilution is Bt10.2-10.5 (based on exercise price of Bt5.8-6.4), which is far above the current share price. We maintain Buy on TRUE, both on the lifting of the concern over funding and ongoing gain in revenue market share to 22% in 2017 (from 19.8% in 3Q15).