Intouch Holdings

Intouch Holdings Plc (INTUCH) 

 

Core profit slightly above our model      

INTUCH posted a Bt4.42bn net profit for 4Q15, up 21% YoY and 27% QoQ. Excluding extra items, its core earnings would be Bt4.57bn, up 11% YoY and 15% QoQ. The extra items in 4Q15 included a Bt14m FX loss, a Bt109m impairment for ITV, a Bt26m loss from ceasing a subsidiary operation and impairment for other investments altogether. INTUCH’s net and core profits beat our models by 1% and 3%, respectively, led by ADVANC and THCOM. Core earnings of ADVANC and THCOM exceeded models by 4% and 24%, respectively. INTUCH announced DPS of Bt2.47/share for 1 Jan-31 Mar 2016 operations. It was translated into a 4.47% yield for that period. 

Result highlights 

The core earnings rises at ADVANC (up 7% YoY) and THCOM (up 73% YoY) underpinned an 11% YoY core earnings increase at INTUCH for 4Q15. For ADVANC, its core earnings rise was led by the absence of the 2G asset amortization expense (as a result of the 2G-900MHz concession expiry in Sep 2015) and a drop in regulatory costs, which outweighed the OPEX rises and the service income dip. Service revenue (excl. IC) dipped 0.5% YoY and 0.2% QoQ. Please see details on ADVANC’s 4Q15 results, February 5, 2016. 

THCOM’s YoY core profit jump was led by a greater utilization rate of Thaicom 7 (100% against 78% at end-3Q15), the jump of equity income from Lao Telecom (LTC), the declines of SG&A and interest expenses. Thaicom 7 led the YoY revenue and gross profit growth. (See details of THCOM’s 4Q15 results on our 12 Feb 2016 report.

Outlook

We estimate that INTUCH’s 1Q16 core profit will be Bt1.8bn, down 57% YoY (and 61% QoQ), led by ADVANC’s earnings drop (down 60% YoY), which will outweigh THCOM’s earnings escalation (up 40% YoY). The Bt8bn in handset subsidy and incremental costs for 2G users will dampen ADVANC’s 1Q16 earnings. However, the full-quarter effect of the 100% utilization rate for Thaicom 7 and the further expansion in LTC’s earnings will augment THCOM’s 1Q16 earnings.

What’s changed? 

We have revised up our INTUCH FY16 core profit forecast by 4% (to Bt13.44bn) to reflect the expanded core earnings projections for ADVANC (by 3%) and THCOM (by 6%). With the target price upgrades for ADVANC (6% to Bt180) and for THCOM (5% to Bt45) prompted by their FY16 earnings forecast upgrades, we have revised up our INTUCH NAV-based target price by 6% (to Bt74.50).

Recommendation

Our BUY rating stands, premised on the dividend yield support of 6.8% in FY16, despite its FY16 core earnings slide led by ADVANC (which will outweigh THCOM’s modest FY16 core earnings rise).