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Total Access Communication

Strong profit but limited upside HOLD

Total Access Communication Plc (DTAC)

2Q14 net profit is expected to be strong thanks to lower regulatory

cost. 2H14 profit is projected to improve from 1H14, thus

strengthening FY2014 earnings result. Despite negative factors that

press the share price, DTAC still has a limited upside. We reiterate

HOLD.

- Lower regulatory cost to boost 2Q14 profit


Service revenue in 2Q14 is projected to stay flat from 1Q14, in which

revenue base was lower than usual. Similarly, 2Q14 operating cost (cost of

service (excluding IC) + SG&A) is expected to stay unchanged qoq. The

number of subscribers migrated from 2G network (30% revenue sharing

cost) to 3G network (5.25% revenue sharing cost) is anticipated to grow

from 15.8 million at end-1Q14 to 19.0 million at end-2Q14 (making up 67%

of total subscribers), reducing regulatory cost by 10.2%qoq. This would

compensate for 7.3%qoq increase in depreciation and network

administration cost (DTAC has been accelerating 3G network expansion for

80% population coverage) and 2.7%qoq hike in SG&A (due to the launching

of 4G). Meanwhile, B36m Fx gain in 1Q14 is expected to reverse to B100m

Fx loss in 2Q14. Overall, 2Q14 net profit is expected at B3.1bn, falling

5.0%qoq but growing 7.0%yoy.

- 2H14 profit stronger than 1H14

1H14 net profit is anticipated to make up 49% of FY2014 earnings forecast.

2Q14 profit is likely to be the lowest of 2014. DTAC’s net profit in 2H14

would be stronger than 1H14 because the political tension has receded.

Ratio of regulatory cost to service income is expected to decrease further in

2H14; the number of subscribers migrated to 3G network is projected to

reach 23 million at end-2014. Overall, we maintain FY2014 net profit

forecast at B13.2bn, growing 25%.

- Limited upside. HOLD. Switch to TRUE

Share price has dropped by nearly 10% as a result of some negative factors

recently (See page 2); TRUE’s alliance with China Mobile is expected to

have a limited effect on DTAC, while other pressing factors are likely to

have a negative sentiment. Still, DTAC’s share price closed at B122

yesterday, implying limited upside. We reiterate HOLD, switching to TRUE.


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