Advanced Info Service
ADVANC has been investing on 3G network, aiming to be number
one. 2Q14 profit is expected to drop and make the lowest of 2014,
then rebound in 2H14. FY2014 net profit is projected close to our
forecast. Despite negative factors that press the share price,
dividend yield is currently over 6%; this is a good entry point.
- Investment on 3G network to press 2Q14 profit
2Q14 service revenue (excluding IC) is expected to stay flat qoq; revenue
base was lower than usual in 1Q14 (down 1%yoy). Cost of service
(excluding IC) is projected to increase by 1%qoq. The number of
subscribers migrated from 2G network (25% regulatory cost) to 3G network
(5.25% regulatory cost) is anticipated to grow from 26 million in 1Q14 to 30
million in 2Q14 (making up 70% of total subscribers), reducing regulatory
cost by 5%qoq. However, it would not be enough to compensate for
increasing expenses on 3G network expansion (aiming to be number one).
2Q14 selling and administrative expense is projected to increase by
5.5%qoq after the advertisement scheduled in 1Q14 was postponed.
Moreover, 2Q14 financial cost would increase from 1Q14 by B180m as a
result of new issue of bond. Overall, 2Q14 net profit is anticipated at
B9.0bn, dropping 5.0%qoq.
- 2H14 profit stronger than 1H14
We expect 1H14 net profit to make up 47% of FY2014 earnings forecast.
ADVANC is likely to make its lowest of 2014 in 2Q14. Then, service revenue
is projected to rebound qoq and yoy after the political tension recedes. Cost
of service is likely to drop; ratio of regulatory cost to service income is
expected to decrease further as more subscribers would be migrated to 3G
network, estimated to exceed end-2014 target of 35 million (75% of total
subscribers). As a result of delayed auction for 900-MHz 2G network license,
ADVANC has to migrate as many subscribers as possible to 3G network
before the concession expires in September 2015, so expenses on 3G
network promotion would be higher than expected. However, FY2014 net
profit would be better than 5% below expectation. We maintain FY2014
earnings forecast at B39bn, rising 10%yoy.