Target price : Bt99.00
Recommendation : BUY
Closing Price (22 April 09) : Bt 77.25
1Q09 net profit expected to be up 4.26% QoQ
- Our forecast suggests that ADVANC, Thailand's top mobile phone operator by subscribers will deliver a net profit of Bt4,142.46m in 1Q09, up 4.26% QoQ but down 19.15% YoY.
- ADVANC remains confident that the National Telecommunication Commission (NTC) will issue long-awaited licenses for 3G mobile phone services by the end of this year.
- The NTC is looking at ways to reduce contribution to the so-called universal service obligation (USO) fund and other fees. This is seen as good news for ADVANC if the cuts become a reality.
- We estimate ADVANC's 2009 net profit to come in at Bt18,594.39m. If ADVANC takes write-off charges of another Bt3.1b for the remaining goodwill relating to network impairment, its net profit should fall to Bt15,494.36m.
- We keep a BUY call on ADVANC with a price target of Bt99/share.
1Q09 net profit expected to be about Bt4,142.46m, up 4.26% QoQ but down 19.15% YoY
The double whammy of political unrest and deteriorating economic conditions is expected to drag revenue from mobile phone services down 1.2% QoQ to Bt23}787.69m. Voice revenue is forecast to fall but revenue from non-voice services should keep growing. Revenue from mobile handset sales is also predicted to fall 25% QoQ. Operating costs would edge higher along with rising depreciation charges as result of increased network investments and the reduced number of remaining concession years. SG&A expenses are however anticipated to be lower than in 4Q08 thanks to falling marketing expenses and lower re-branding expenses than in 4Q08. Interest expenses are predicted to rise as ADVANC sold Bt7.5b worth of bonds with an average coupon rate of 5.5% in Jan 2009. The proceeds from the bond sale would be used to repay debt of Bt3.5b in Mar and another Bt3.5b in Sep 2009. Overall, we estimate ADVANC's 1Q09 net profit to be about Bt4,142.46m, up 4.26% QoQ but down 19.15% YoY.
3G mobile phone licenses expected to be issued by end-2009
ADVANC remains confident that the National Telecommunication Commission (NTC) will put four licenses for third-generation mobile phone services up for auction in 3Q09: (i) 10MHz for three licenses and (ii) 15MHz for one license with an auction price of US$100 per license and US$150 per license respectively. In addition, ADVANC expects the NTC to award the licenses to successful bidders though e-auction by the end of this year. ADVANC is keen to win a 3G license with 15MHz. The investment budget for 3G services was earlier set by ADVANC at Bt25b, including a 2G investment, but the investment costs are now expected to be lower as a result of falling prices for 3G equipment and gears. The intense pricing competition among suppliers would also push investment costs lower. The investment would be made through its subsidiary Advanced Wireless Network (AWN). For investment in 3G mobile services on its 900 MHz bandwidth, no significant headways have been made. It is expected that ADVANC will no longer invest in 3G services on its 900 MHz bandwidth, as it would wait for a new 3G license on a new 2.1 GHz spectrum.
Yesterday, Thai daily Prachachart Turakij reported that the NTC planned to hold a public hearing about a proposed reduction in contribution to the so-called Universal Service Obligation (USO) Fund from third-type license holders who did not provide services in remote areas or as required by the NTC from 4% of revenue before expenses to 1-1.5%. The license fees would also be reduced from 2.5% to 1.75%, 2% or 2.25%. If the above fee reductions become a reality, it would benefit license holders, as costs should be lower.
Revenue remains uncertain in 2H09 but likely to be better than in 1H09
In 1H09, ADVANC is expected to remain under strain from domestic political uncertainty and slowing economic conditions from 4Q08. The imposition of emergency rule and escalating political tensions during the long Songkarn holidays have also badly dented consumer confidence and cut into mobile phone use. However, we take a more positive view of ADVANC in 2H09 in light of the government's economic stimulus measures and smaller-than-expected export contraction in Mar 2009 (down 23.1% against market estimate of 26%). For the whole of 2009, we maintain our forecast that revenue will grow by 3.05%. We also estimate ADVANC's 2009 net profit to come in at Bt18,594.39m. If ADVANC takes write-off charges of another Bt3.1b for the remaining goodwill relating to network impairment, its net profit should fall to Bt15,494.36m. We keep a BUY call on ADVANC with a price target of Bt99/share.
By Phillip Securities (Thailand) Plc. on Apr 23, 2009
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