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Advanced Info Service

Inexpensive. Good entry point BUY

Advanced Info Service

ADVANC has been investing on 3G network, aiming to be number

one. 2Q14 profit is expected to drop and make the lowest of 2014,

then rebound in 2H14. FY2014 net profit is projected close to our

forecast. Despite negative factors that press the share price,

dividend yield is currently over 6%; this is a good entry point.

- Investment on 3G network to press 2Q14 profit

2Q14 service revenue (excluding IC) is expected to stay flat qoq; revenue

base was lower than usual in 1Q14 (down 1%yoy). Cost of service

(excluding IC) is projected to increase by 1%qoq. The number of

subscribers migrated from 2G network (25% regulatory cost) to 3G network

(5.25% regulatory cost) is anticipated to grow from 26 million in 1Q14 to 30

million in 2Q14 (making up 70% of total subscribers), reducing regulatory

cost by 5%qoq. However, it would not be enough to compensate for

increasing expenses on 3G network expansion (aiming to be number one).

2Q14 selling and administrative expense is projected to increase by

5.5%qoq after the advertisement scheduled in 1Q14 was postponed.

Moreover, 2Q14 financial cost would increase from 1Q14 by B180m as a

result of new issue of bond. Overall, 2Q14 net profit is anticipated at

B9.0bn, dropping 5.0%qoq.

- 2H14 profit stronger than 1H14

We expect 1H14 net profit to make up 47% of FY2014 earnings forecast.

ADVANC is likely to make its lowest of 2014 in 2Q14. Then, service revenue

is projected to rebound qoq and yoy after the political tension recedes. Cost

of service is likely to drop; ratio of regulatory cost to service income is

expected to decrease further as more subscribers would be migrated to 3G

network, estimated to exceed end-2014 target of 35 million (75% of total

subscribers). As a result of delayed auction for 900-MHz 2G network license,

ADVANC has to migrate as many subscribers as possible to 3G network

before the concession expires in September 2015, so expenses on 3G

network promotion would be higher than expected. However, FY2014 net

profit would be better than 5% below expectation. We maintain FY2014

earnings forecast at B39bn, rising 10%yoy.

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