True Corp.
On track to move to 2nd place BUY
True Corp. Plc (TRUE)
TRUE continues to work to expand revenue market share to 33% in 2018. Its 2G 900MHz coverage reached 98% of the population in June, equal to leader ADVANC and above DTAC. The better 2G coverage and handset subsidy will help add revenue market share, largely prepaid, where its share is only 16%. We expect it to report profit next year, three years ahead of market estimates, since revenue market share will be close to 30% in 2017. Still Buy with DCF-based TP of Bt10.2.
Slightly positive tone. We attended the August 17 analyst meeting and felt slightly positive. Key takeaways are below.
Rollout: Mobile: Rollout on
900MHz was completed in June, giving grounds for TRUE’s claim that it offers superior coverage for 2G, 3G and 4G at 98%. It is now turning its attention to boosting 4G capacity, using its 1800MHz spectrum. With coverage at 98% for all technologies, capex for TRUE is likely to have topped out in 2Q16 since boosting capacity costs less than adding coverage.
Online:
TRUE says it has already replaced DSL technology with fiber optic with an 8mn home-pass (or 36% household coverage). It targets 10mn home-pass by mid-2017.
- Revenue market share gain continuing: TRUE outlined its major strategies to gain further revenue market share after achieving 23.6% in 2Q16 with a continued emphasis on prepaid. Despite the recent increase in prepaid revenue market share, it still had only ~16% in 2Q16, though this reflects a good increase from 12% in 4Q15. The key to gaining ground in this market is reaching 98% 2G coverage on 900MHz, which was accomplished in June, putting it on equal footing with prepaid leader ADVANC and above second-place DTAC (which has 80%). The better coverage coupled with some handset subsidy will help it continue to grab share. It continues to target a 33% revenue market share by 2018.
- Handset subsidy for TRUE will continue at least through this year, after which it will begin easing off; its focus is on prepaid rather than postpaid. The big difference between TRUE and its peers is that TRUE is getting new subscribers – meaning added revenue - while the other two players are simply trying to hang on to current subscribers. TRUE will continue to offer subsidies until it reaches its goal of 33% revenue market share.
Buy, target price of Bt10.2. We maintain Buy with an 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. Note that we expect TRUE to continue being in the red as the amortization expense from 900MHz will come in 3Q16 onward. But this is in our and market estimates.
