The Nation




Good, inexpensive choice. Accumulate BUY

Advance Info Service Plc (ADVANC)

- 1Q14 profit up 7.5%qoq, down 4.4% yoy

ADVANC posted 1Q14 net profit at B9.4bn, growing 7.5%qoq but

dropping 4.4%yoy - in line with projection. Excluding an extraordinary

item i.e. a decrease in net expenditure from B538m in 4Q13 to B121m

in 1Q14, the normalized profit was B9.6bn - 3.8% better than expected,

rising 3%qoq but decreasing 2.7%yoy because of the slowing economy

and fierce competition. 1Q14 service revenue (excluding IC) slipped

1.8%yoy, while selling and administrative expense increased 31.2%yoy

from aggressive marketing campaigns to encourage subscribers to

migrate to a new 3G network before the 2G network expires in

September 2015. Although 3G investment since 2Q13 resulted in an

increasing expense, the cost of service decreased 10.1%yoy because the

regulatory cost to service revenue ratio dropped from 25.9% in 1Q13 to

19.3% in this quarter (after the migration of subscribers from 2G

network with regulatory cost (annual license fee) of 25% to new 3G

network with regulatory cost of 5.25%). Regulatory cost to service

revenue ratio in 1Q14 stayed flat from 4Q13; although the subscriber

migration increased from 9.8 million in 4Q13 to 26.2 million in this

quarter (62% of total subscribers), ADVANC had to undertake

retroactive adjustment of regulatory cost for a 2G network tower rental

income ADVANC received from its subsidiary AWN since 3Q13.

- Profit to weaken in 2Q14, yoy growth foreseen

Even though 2Q14 is a low season of the year, year-on-year profit

growth is still foreseen owing to a low profit base in 2Q13 which was the

first quarter that 3G investment expense was booked. Regulatory cost to

service revenue ratio (excluding IC) would also improve yoy due to

greater subscriber migration to 3G network and no retroactive

adjustment of regulatory cost. For 2H14, high year-on-year growth is

expected; service revenue would revive yoy after the new 3G network

can replace all 2G network in the middle of 2014, while regulatory cost

to service revenue ratio would decrease. Combined with a better

controlling of network expansion expense, FY2014 net profit would grow

10% to B39bn.

- More attractive valuation than peers. Positive sentiment waiting in 2H14

ADVANC's valuation is cheaper than peers. The expected P/E ratio is

17.8x, versus 21.4x of the sector's, while the current fair value provides

13% upside. Additionally, with its strong financial status, ADVANC would

be one of the winners in 1800 and 900 MHz license biddings held by the

NBTC in the second half of the year (for further data service

development to boost long-term growth), which is a positive sentiment

to increase the share price in the future. Reiterate BUY.

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