Analyst Expects an Upside on ADVANC with Greater Economic Growth, Giving TP at ฿257

KGI Securities (KGI) has made an analysis on Advanced Info Service Public Company Limited (ADVANC), giving an “Outperform” rating with a target price at ฿257.00/share. 

 

KGI states in the analysis that it expects ADVANC to report a 1Q20 net profit of Bt7.5bn (+6% QoQ, -1% YoY). The improvement to QoQ would be driven by lower SG&A while the slowdown YoY would be due to greater costs along with a larger mobile network. KGI foresees a downside of 4% – 5% due to the COVID-19 outbreak. Meanwhile, upside is expected in 2021 along with greater economic growth and easing of the outbreak.

 

Mobile clients and ARPU to be pressured by economy and COVID-19    

KGI expects ADVANC’s mobile subscriber base to increase by 80K in 1Q20, slowing from growth of 456K in 4Q19 and 322K in 1Q19 due to a slower economy and temporary shutdown of all shops since mid-March. ARPU would be pressured by i) low price plans (unlimited fixed speed) for prepaid subscribers launched in 4Q19, ii) new low-price plan for postpaid subscribers launched in February 2020, and iii) some postpaid customers migrating to lower prepaid price plans.

 

1Q20 net profit is expected to show growth QoQ but drop slightly YoY         

KGI expects ADVANC to report a 1Q20 net profit of Bt7.5bn (+7% QoQ, -1% YoY). Growth QoQ would be driven by SG&A declining 23% QoQ due to fewer marketing events and lower administrative expenses compared to 4Q19, when the company had employee remuneration. The slight decline YoY would be due to cost of sales and services increasing 5% YoY, which is expected to offset revenue growth of 3% YoY.

 

KGI 2020 forecast would have downside risk of 4% – 5%      

Though the 1Q20 net profit is expected to account for 24% of KGI 2020 net profit forecast of Bt31.2bn, KGI foresees downside risk of around 4% – 5% to a full-year forecast. Downside risk would come from a decline in 2Q20 profit, which is expected to be the lowest of this year, as it would be the first full quarter of impact from the COVID-19 outbreak. However, the KGI 2021 forecast would have upside risk along with economic improvement and easing of the outbreak. Note that KGI is likely to revise earnings forecasts for 2020 – 2021 after the 1Q20 results are announced.

 

Risks

Lower than expected revenue, more intense competition.