Brokers upbeat as firm prepares for 3G service

Brokerage houses that updated AIS research in August and September recommend the stock at between Bt105 and Bt132.

Its price has fallen almost 10 per cent this year. However, the Stock Exchange of Thailand has dived 20 per cent in the same period.

AIS is Thailand's biggest and most profitable mobile telecommunications company. It operates a dualband cellular network using the 900megahertz and 1800MHz bandwidths.

It holds concessions from stateowned TOT Corp and CAT Telecom.

It has 26 million subscribers. That is a 45percent market share. Its closest competitor, Total Access Communication (DTAC), has 17.4 million subscribers, or 30 per cent of the market.

In the second quarter, basic voice income represented 76 per cent of revenue, followed by data at 13 per cent, international roaming at 5 per cent and other revenue at 6 per cent.

AIS has one big advantage over DTAC and True Move - its effective revenuesharing and feepayment obligations to state agencies are lower at a 20 per cent and 21 per cent respectively, compared with 25 per cent across the board for the other two.

DBS Vickers Securities (Thailand) said AIS was its top pick at a target price of Bt118.

It added AIS was resilient to inflation and interest rates because 70 per cent of its subscribers were outside Bangkok, where incomes are rising thanks to improving produce prices.

AIS has a "strong, healthy" balance sheet that means it can roll out a 3G network without any financial constraints.

Its compelling dividend of 7.9 per cent of earnings for 2008 and 8 per cent for 2009 translate to limited downside risk.

The broker has raised AIS earnings forecasts by 5.9 per cent for 2008 to Bt20.57 billion and by 5.3 per cent for 2009 to Bt21.17 billion.

"Due to low valuations, AIS has limited downside from current levels. But we see no shareprice catalyst in the near term, as the awarding of 3G licences will take place in the first quarter of 2009 at the earliest. There is a degree of uncertainty in the actual timing of awarding," DBS Vickers said.

It expects the shares to maintain their price in the second half.

Bualuang Securities recommends the stock, too, at a target price of Bt118.

Given strong financials - 0.3 to 0.4 times debt to equity and 18 to 20 times interest coverage - coupled with the best credit rating in the industry, the lowest cost of debt and the most solid operating cash flow, the company can borrow more cheaply to fund its 3G auctioning and network rollout.

There are complications surrounding AIS using TOT Thai Mobile bandwidth.

Assuming it cannot strike a deal with TOT, it has two other options, but these are problematic, too.

Using CAT's 850MHz requires Cabinet approval, and its own bandwidths are full and migrating megahertz for 3G will severely damage 2G call quality.

Securing a National Telecommunications Commission licence and bandwidth looks, in both engineering and regulatory terms, the best option.

It will be a boost to the bottom line, too, because NTC licence fees will be cheaper than concession revenuesharing obligations.

Bualuang's preliminary estimate suggests a Bt12toBt15ashare equity value upside if it takes the NTC licence option. That is assuming fees of between 6 per cent and 7 per cent of service revenue, Bt3 billion to Bt5 billion in bidding fees, capital expenditure of Bt6 billion to Bt8 billion a year and subscriber migration from 2G to 3G of between 20 per cent and 70 per cent between 2010 and 2015.

"AIS is a moderateyield play of between 6 per cent and 7 per cent, with steady income streams between now and next year," Bualuang said.