The Nation



Advanced Info Services

2Q14: Essentially in line, better outlook in 2H14 - 2Q14 net profit Bt8.47bn, down YoY, QoQ, just 5% below our estimates - Lower-than-expected voice revenue caused the slight disappointment - Maintain forecast on expectation of better 2H14 - Reiterate Buy with unchanged DCF-based PT of 300.0 BUY

Advanced Info Services Plc (ADVANC)

- 2Q14 review. Net profit was Bt8.47bn in 2Q14, falling 7.8% YoY and 10.6% QoQ, missing

SCBS by 5% and consensus by 7%. The main miss lay in lower voice revenue than

anticipated. The company arranged a conference call in the evening and the tone was

neutral. It has revised down revenue ex-IC growth from 6-8% to 1-2% but raised

consolidated margin to 100bps from flat. We expect slow revenue growth, especially

for voice and see the downward revision on revenue as cancelling out the margin

expansion. We thus leave our 2014 forecast unchanged at Bt37.9bn. 1H14 accounted

for 47% of our full-year earnings estimate and we expect a better 2H14, backed by an

improving economy. ADVANC announced a 1H14 DPS of Bt6.04 (3% dividend yield). XD is

on Aug 13.


- ADVANC had better revenue ex-IC momentum than DTAC, up both YoY (1.7%) and

QoQ (2.2%) to Bt29.6bn. The biggest factor was strong non-voice revenue growth

of 32% YoY and 9.6% QoQ, made possible by better coverage (now at 97%) and

better network quality after the completion of its 3G 2.1GHz network rollout in

2Q14. This growth led revenue contribution from non-voice up to 35% in 2Q14

from 27% in 2Q13. Voice revenue slid 12% YoY and 2.5% QoQ, hit by the economy.

- Unlike DTAC, ADVANC continued to add new subscribers in 2Q14, both postpaid

(up 197K) and prepaid (up 318K). Blended ARPU, however, fell 12% YoY due to

tougher competition. The firm has successfully migrated 80% of total subscribers

to its 3G 2.1GHz network (or about 34.4mn subscribers), beating its own full-year

estimate of 76%. It has now raised its target to 85% by yearend. Smartphone

penetration improved to 36% in 2Q14 from 28% in 1Q14.

- Device sales rose by 19.4% YoY but were down 11% QoQ to Bt5bn, as more sales

came from lower-priced handsets aimed at the lower end of the market.

- Cost of service came down by 6% thanks to regulatory cost savings after

migrating more subscribers to 3G. Regulatory cost/service revenue ex-IC in the

quarter came down to 18percent from 24% in 2Q13 and 19% in 1Q14.

- SG&A surged 54% YoY on higher selling and marketing expenses as it battles to

keep and add subscribers in the fiercely competitive data market.

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