Advanced Info Service

Above estimate BUY (maintained) Target Price: Bt180.00 Price (09/02/12): Bt152.00

Advanced Info Service Plc (ADVANC)

Above estimates: The reported net profit exceeded our model by 23%, as ADVANC's deferred tax provision was only Bt2.84bn (we had estimated Bt2.94bn). Core earnings were 8% above our expectation, due to stronger-than-estimated revenue. Operating profit beat our projection by 9%. The firm announced a Bt4.26 DPS for 2H11 (we had assumed Bt3.10).

Results highlights: ADVANC reported a Bt3.66bn net profit for 4Q11, down by 37% YoY and 41% QoQ. There were two extra items—a Bt2.84bn deferred tax provision (ahead of the headline corp tax cut to 23% in 2012) and a Bt385m goodwill impairment for DPC (its final impairment). Stripping out those extra items, core profit rose by 10% YoY and 4% QoQ. The YoY core earnings rise was led by service revenue, which more than offset the effect of higher OPEX. Service revenue (excl. IC) increased by 12% YoY and 6% QoQ. There was no discernable negative impact from the flooding. Voice revenue grew by 9% YoY and 6% QoQ, while nonvoice income jumped by 34% YoY and 7% QoQ.

Outlook: Management guides for the following FY12 operational indicators. Service revenue (excl. IC) growth of 5-6%—nonvoice 25%; voice flattish. Sales revenue up 10-12%. CAPEX of Bt8bn. ADVANC targets EBITDA margin of 44% (44.8% in FY11), due to heavier low-margin handset sales. During the conference call, the CFO claimed that revenue in Jan posted YoY growth. The firm expects EBITDA margin to be diluted by 1-2% in the first two years of holding a 3G license, because of heavy CAPEX. EBITDA margin will improve in the third year, as licensing-related fees will be much lower than concession revenue-sharing obligations.

What's changed? We have upgraded our FY12 profit forecast by 6% to Bt31.5bn to factor in expanded expectations for service revenue. Our YE12 target price rises 7% to Bt180.

Recommendation: ADVANC is one of the most qualified bidders for a 3G license. We expect auctioning go ahead before YE12. Our BUY rating stands.