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Total Access Communication

Profit to contract in 4Q13, but to rebound by 28% in 2014 BUY

Total Access Communication Plc (DTAC)

Dull business escalates competition and presses 4Q13 profit

4Q13 purchasing power has been low due to political turmoil and rivals’ sales

promotion (new package with lower voice service fee), so 4Q13 voice revenue

(excluding IC) is expected to stay flat from 3Q13, which was a low season.

Revenue from data service is likely to grow by 8%qoq, decelerating from the

previous three quarters with 10%qoq average growth. Thus, DTAC’s 4Q13 service

income (excluding IC) is projected to increase by 4%qoq to B19bn. The launching

of new iPhone would raise revenue from mobile sales by 90%qoq, boosting total

income (excluding IC) by 14%qoq to B24bn. However, total cost (cost of service,

excluding IC) is projected to increase by 19%qoq, higher than income growth.

Depreciation and network administration cost would increase along with expansion

of 3G network, whereas revenue sharing cost would drop by only 2%. Though

DTAC has migrated 10 million subscribers to new 3G network under 2.1GHz

frequency as targeted, most of them were migrated in late-4Q13, so there would

be only a little decrease in revenue sharing cost (from 30% under 2G concession to

5.25%). Marketing expense is projected to leap by 47%qoq, as DTAC has been

injecting commission fee for SIM distributors in order to maintain its market share.

Overall, DTAC’s 4Q13 net profit is projected to drop by 9.8%qoq to B2.4bn, and

FY2013 net profit is expected to stay flat from 2012 at B11.2bn, 3% lower than our

forecast.

- To recognize benefit from new license in 2014. Downside from economic situation

DTAC’s FY2014 earnings result is expected to prosper. Average number of

subscribers migrated to new 3G network under 2.1GHz frequency in 2014 is

projected to exceed 13 million, versus the average of 2.5 million migrated

subscribers in 2013. Thus, 2014 revenue sharing cost is expected to decrease

significantly from 2013 (end-2014 number of new 3G network subscribers is

projected to reach 17 million, or 61% of total subscribers). This would boost

FY2014 net profit by 28% to B14bn, which would be the highest among mobile

network operators. DTAC has booked 30% revenue sharing cost under 2G

concession, whereas ADVANC has booked 25%. Meanwhile, TRUE had to pay

B1.5bn/quarter amortization under 2G concession until 3Q13 (NBTC has expanded

the concession by one year for TRUE to transfer more subscribers to 3G system).

However, FY2014 profit growth would be pressed. Political unrest is likely to lower

purchasing power and escalate competition, so FY2014 service income would not

grow as outstandingly as expected.

 "BUY". 37% upside, expected dividend yield over 5%p.a.

FY2014 profit is likely to prosper, and FY2014 fair value (DCF) at B136 implies 37%

upside with expected dividend yield at 5%p.a. We reiterate "BUY". Dividend from

4Q13 earnings result would be paid at B1.1/share or 1.1% dividend yield.




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