- 1Q14 net profit strong. Low income but good control on expense
1Q14 net profit was reported at B3.3bn, leaping 78%qoq. B35m extraordinary
profit from Fx gain was booked in 1Q14, reversing from B1.2bn extraordinary
expense in 4Q13. Excluding extraordinary items, 1Q14 normalized profit was
B3.27bn, growing 8.4%qoq (projected to stay flat). Gross profit margin
improved from 31.3% in 4Q13 to 34.6% in 1Q14 (better than expected). Though
service revenue fell by 1.5%qoq due to weak purchasing power and fierce
competition, cost of service (excluding IC) dropped by 3%qoq. Thanks to good
control on operating cost, expenses on network decreased by 10%qoq. Also, the
number of subscribers migrated from 2G network (30% revenue sharing cost) to
3G network (5.25% revenue sharing cost) grew from 4Q13 by 3.9 million to 15.9
million in 1Q14 (making up 59% of total subscribers). Thus, ratio of revenue
sharing to service income dropped from 26% to 25.6%. Moreover, selling and
administrative cost dropped 12%qoq in 1Q14, after advertisement season in
4Q13 passed. - Low profit in 2Q14, but to rebound in 3Q14-4Q14
Revenue sharing cost is likely to drop further throughout 2014, benefiting DTAC.
The number of 3G network subscribers is projected to increase and reach 21
million at end-2014 (making up 73% of total subscribers). However, due to low
season, 2Q14 service revenue is expected to drop qoq and negate the positive
factor, so 2Q14 net profit would drop from 1Q14. Then, net profit is expected to
rebound in 3Q14 and make the year's highest in 4Q14, which is a high season.
1Q14 net profit made up 24.7% of FY2014 earnings forecast. We maintain the
forecast, projecting net profit to grow by 25% in 2014. - Strong growth already reflected in share price. Hold
DTAC's share price has been increasing, currently having 2.1% downside.
FY2014 dividend yield is possibly above 5.0%. We reiterate to hold for dividend.
DTAC announced 1Q14 dividend at B1.42 (or 1.1% dividend yield). XD date is 12