Advanced Info Service

Advanced Info Service Plc (AVANC) 

 

Investment thesis

What’s new? 

Advanced Wireless Network (AWN), ADVANC’s subsidiary, proposed to the NBTC that the latter award it the 900MHz license at the same winning bid price as Jas Mobile Broadband Co Ltd, which was Bt75,654m until it was soon dropped. The NBTC board will consider AWN’s proposal, and if it agrees with it, ADVANC will then propose this issue at the upcoming shareholders’ meeting to seek approval to buy the 900MHz license. The NBTC said that it had passed on ADVANC’s proposal to Prime Minister Prayuth Chan-ocha for consideration. The junta chief said that his government was ready to use its special powers under Section 44 of the interim charter to pave the way for AWN to buy the 900MHz license, “to protect the nation’s interests”. 

Negative for ADVANC—value erosion from 900MHz acquisition

The company admitted making the proposal but we don’t know if such a move will eventually lead to the successful purchase of the 900MHz license. If it proves to be true in the end, it will definitely be negative for ADVANC because acquiring the 900MHz license at the unreasonably high price of Bt76bn while using only 7.5MHz of a total 10MHz of this frequency slot would impose on it equity value erosion instead of value addition. Note that the first slot of 10MHz of 900MHz frequency for which JAS dropped the license is close to DTAC’s 850MHz frequency; hence, around 2.5MHz of 10MHz in total must technically be reserved as “guard band” to prevent any frequency interference. We believe it is not worthwhile to invest Bt76bn simply to use only 7.5MHz bandwidth.

The 900MHz license will raise questions from equity shareholders

The firm previously re-asserted that it had made the right decision to forego the Bt76n 900MHz license that TRUE won and utilize the Bt76bn savings for additional CAPEX on 4G and for taking care of 2G-900MHz subscribers and that it had no interest in the re-auction at JAS’ previous winning price. This will spark a great deal of confusion due to the ambiguity over the firm changing its stance. We believe that it has so far spent about Bt4bn out of the estimated Bt8bn in handset subsidy for taking care of 2G customers and signed the MOU for partnership deals with TOT for utilizing the latter’s 2100MHz frequency. 

The 900MHz license acquisition will prompt earnings downgrade

If such an acquisition goes ahead, we will downgrade our earnings, target price and ratings on both ADVANC and INTUCH. Our preliminary estimate is that the license for Bt76bn would incur net losses for the entire 15-year license life—Bt3.7bn loss in 2017, Bt4bn loss in 2018 and Bt5-6bn loss per annum during 2019-22 before reducing Bt500m-Bt4bn per annum during 2023-30, which would have a 12% impact on its consolidated net profit during 2017-18, by 17-19% in 2019-20, 21-22% in 2021-22 and 4-20% during 2023-30. The license acquisition would erode the equity value by Bt35/share (or down 16%). The annual license amortization of Bt5bn/annum and the interest expense of Bt1.3-2bn/annum would eat into its bottom line. We believe that the ability to maintain the 100% payout ratio would be difficult in the next five years.