Advanced Info Service

Q4 2012 profit hits new high, improving continuously in Q1 2013 BUY

Advanced Info Service Plc (ADVANC)

Q4 2012 profit projected to hit new high due to seasonal benefits and iPhone 5 sales

According to seasonal benefits and the opening of iPhone 5 last December, ADVANC's net new additions are projected to leap by 45% QoQ to 750,000 units. For the non-voice service volume, it tends to increase aggressively which would help boost the average revenue per user (ARPU) to rise slightly to B252 or 3.3% QoQ increase. Combined with the mobile sales revenue that is

projected to increase by 40% QoQ, the total service and sales revenue is projected to increase by 7% QoQ. However, the selling and administrative expenses are likely to increase at a rate slightly higher than the revenue due to effects from payment of 3G (with 2.1 GHz spectrum) auction fee, resulting in B65m of expense in 4Q12 (starting in 7 December 2012). Accordingly, the gross profit margin would increase at a rate lower than the revenue by around 4.5% QoQ. Although this would be partially offset by the selling and administrative expenses that tend to increase by 11.6% QoQ due to acceleration on marketing during the high season, we believe that ADVANC's 4Q12 profit would hit the new record high at B9.02bn, growing continuously by 2.7% QoQ. Accordingly, the company's FY2012 net profit is projected to stand at B35.4bn or 59% YoY increase, which is slightly higher than our projection by 1.05%.

2013 profit projected to grow continuously in every quarter

We still hold our positive prospect toward ADVANC's earnings result in 2013,

believing that the net profit is very likely to grow constantly in every quarter

after 1Q13 which is still under seasonal benefits from the prior quarter. Sales of

iPhone 5 for the first full quarter would boost the number of subscribers. For the

non-voice service revenue, it tends to grow continuously. Moreover, the

company would be able to compensate the expense of 3G auction fee for full

quarter at B245m since 1Q13 onward. After 2Q12 which is the first quarter

when ADVANC would fully start 3G service under the new license of 2.1 GHz

spectrum, we still believe that the migration of customers to the new 3G service

would benefit the non-voice service revenue to grow even more than present.

This is because of 3G service's significantly higher efficiency on the spectrum of

900 MHz. In addition, the company would also benefit from the decrease of

profit sharing due to the present concession with 25% of the revenue that

would decline to 10-15% (license fee included). This is under an assumption

that ADVANC would gradually migrate its first-class customers with high ARPU

to the new 3G service by 10% of this year's total subscribers. Accordingly, the

company's 2013 profit would be boosted to grow continuously by 12% YoY to

B39bn.

Share price still has 19.6% upside. Dividend yield stands at 6%/year.

Recommend "BUY"

ADVANC is projected to clearly obtain benefits after starting 3G service under

the new license since 2013 onward. For this year's fair value, it stands at B250

with 19.6% upside. In addition, the company is projected to announce 2H12

dividend yield at around B6.0/share or 2.87%. Accordingly, we reiterate our

recommendation of "BUY" for ADVANC.