Total Access Communication

Q1 2013 profit to shine, stepping further with new 3G service BUY

Total Access Communication Plc (DTAC)

Revenue supported by new quality network and decreased cost boost 1Q13 profit

According to seasonal benefits and countrywide network upgraded the prior year

in order to improve the signal quality together with information service, DTAC's

customer base is projected to grow continuously from 4Q12 by 750,000 users.

This would help raise the average revenue per user (ARPU) slightly; as a result,

1Q13 profit is likely to grow by 5.0% QoQ. Nevertheless, the revenue from

phone sales have sunk by 25% QoQ because the trend of new iPhone opening

since November 2012 has faded, so the total revenue from sales and service

would only stabilize from 4Q12 at B24bn. However, the gross profit margin is

likely to increase from 27.6% in 4Q12 to 30.6% because phone sales with the

margin lower than service income have decreased. Moreover, DTAC won't have

to recognize extraordinary expense of extra bonus (included in service cost)

which was meant to urge employees to make more members like in 4Q12. Other

than that, the company 1Q13 selling and administrative expenses would decline

by 8.6% QoQ due to lessened advertising cost. Overall, DTAC's 1Q13 net profit is

projected to grow by 32% QoQ to B3.4bn.

New 3G service to start this June, projected to boost FY2013 profit by 20.4% YoY

DTAC's new 3G service under the new license of 2.1 GHz would start providing

service since June 2013 onward. The company aims to accelerate on transferring

2G customers to the new license 3G immediately after the service begins.

Accordingly, benefits of the new 3G service for DTAC would enlarge continuously

along with the customers transferred to the new service. For the service income,

it would also grow since 3G service is more efficient than the old 2G spectrum.

In terms of revenue sharing, it would drop to 5.75percent from total revenue from

30% of service revenue. However, the company is projected to not benefit much

from 3G service during 2Q13 because it's only the start of customer transferring

process; in addition, it's also a low season for DTAC. Therefore, 2Q13 profit is

likely to weaken from 1Q13. However, we're convinced that the overall look of

DTAC's FY2013 profit would still be as estimated; the 2nd half 2013 profit would

accelerate when customer are continuously transferred under an assumption that

the company can transfer 35-40% of customer base to the new 3G service within

end-2013. Accordingly, DTAC's net profit is projected to grow by 20.4% YoY to

B13.5bn.rofit is projected to return to grow once again by 18% YoY to stand at

B14bn.

Long-term fundamentals bright, but INTCUH currently a better choice

We believe that DTAC's share price increasing by 12% in the past 2 weeks has

already reflected the benefits that the company would gain after partially

starting the new 3G service in 2Q13. Thus, we reiterate our recommendation of

"BUY" for DTAC due to 13.4% upside from the fair value and long-term benefits

from new 3G service. Nevertheless, INTUCH seems to be a better choice for the

time being because it would benefit from holding stake of ADVANC which has

obtained the new 3G license and would also begin the service in 2Q13. Other

than that, INTUCH's share price still has 28% upside which is currently higher

than DTAC's.