True Corporation
Preview 2Q16: Gaining in the race for share BUY
True Corp. Plc (TRUE)
TRUE continued to gain mobile revenue market share in 2Q16 for both prepaid and postpaid, which will translate into stellar revenue growth of 30%. As it has yet to book the amortization expense for the 900MHz license, we expect core loss to be more than halved to Bt400mn (vs. core loss of Bt1.0bn in 1Q16). Still Buy with DCF-based TP of Bt10.2.
Slightly positive tone. We talked to management on the phone to obtain a preview of 2Q16 performance. The key takeaways from the conversation are below.
Mobile unit: This unit continues the gain in revenue market share seen for the past two quarters. Revenue market share may even pass the 23% mark in 2Q16 (from 22% in 1Q16). This translates into high service revenue ex IC growth of 30% YoY and 8% QoQ. As in 1Q16, revenue growth is being upheld by both voice and non-voice services. Revenue growth from voice is from market share stolen from prepaid service while non-voice revenue continues to grow at an accelerating pace in tandem with greater use of 4G. On the cost side, things look stable QoQ (particularly amortization expenses since the 900MHz license will not start being amortized until 3Q16). The exception is marketing expenses, which management says remains key to sustaining solid revenue growth momentum.
Online unit: Service revenue continues to grow both YoY and QoQ, underpinned by broadband service. However, there will be no repeat of 2015’s large revenue recognition from tower transfer to its infrastructure fund (DIF) in 2Q16, so revenue from product sales will plunge YoY. On the cost side, there is little change from 1Q16, reflecting its efforts to control costs.
TV unit: Revenue continues to rise both YoY and QoQ thanks to its convergence strategy which is bringing in more subscribers. However, the increase appears to be completely offset by a surge in the cost of content. This means TV operations will be little changed from last quarter’s loss of Bt410mn.
Expect improving core operations in 2Q16F. We expect a core loss of Bt400mn, worse than last quarter’s net profit of Bt1.9bn. However, this reflected a one-time gain of Bt2.8bn from revaluation of its infrastructure fund in 1Q16. Stripping this out shows a core loss of Bt1.0bn in 1Q16, meaning 2Q16 is actually better at the core level. The driver for 2Q16 is primarily its mobile unit and though we expect continued losses in 2Q16, it will be less than in 1Q16, as it will enjoy robust service revenue growth of 30% YoY underpinned by the revenue market share gain. The impact from amortization of 900MHz license will commence in 3Q16.
Buy, target price of Bt10.2. We maintain Buy with unchanged DCF-based target price of Bt10.2. Despite the surge in the share price over the past month, we still like TRUE. It is the only mobile stock with the story of revenue market share gain, which implies stronger revenue growth than peers. The faster return to the black than the market expects – in 2017 rather than 2020 – will be a major catalyst for share price.
