Analyst Sees Positive Gain for ADVANC in 3Q after Settling Dispute, Rating “BUY” at ฿260

In the analysis, Krungsri Securities (KSS) has given a “BUY” recommendation on Advanced Info Service Public Company Limited (ADVANC) with a target price at ฿260.00/share after ADVANC had reached two agreements with TOT as follows:

1) Settle the dispute over 2G telecom equipment system. TOT had claimed for compensation for AWN’s use of the equipment from October 2015 to June 2016 (remedy period, from the end of concession to auction date). However, ADVANC has to pay for the claim of Bt680m (including interest charges) during that period. ADVANC has booked Bt559m provision for that in the financial statements from October 2015 to June 2016.

2) ADVANC agrees to buy the 2G telecom equipment from TOT. They will use the parts that can be integrated with their 3G and 4G networks and also pay for the use of the equipment for the period from July to August 2019 amounting to Bt250m.

 

After the announcement from ADVANC, KSS stated that the net impact of this settlement would be positive for ADVANC’s cash flow and earnings. In 3Q19, ADVANC would recognize two extra expenses amounting to Bt246m arising from this settlement: (i) difference between claims for damages of Bt680m and Bt559m provision charge (Item 1), and (ii) final payment for the use of the equipment in July and August 2019 (Item 2). Hence, there will be several extra items related to the settlement with TOT, starting with the towers and 2G equipment. However, the net effect on ADVANC would be a gain of Bt273m.

For the longer-term, the settlement would be earnings-accretive to ADVANC as they had been paying about Bt167m per month to TOT for 2G equipment rental. By buying these assets from TOT, ADVANC would Bt2b in rental expenses annually (or 4.8% of FY20F earnings). The largest impact will be seen in FY20. However, KSS chooses to conservatively exclude this from the projections until KSS has a clearer picture of competition in the sector.

KSS continues to put an interest in ADVANC, with an unchanged TP of Bt260. Cost savings arising from the settlement with TOT would cushion earnings if competition escalates beyond the expectations. Hence, ADVANC should be able to meet our Bt33b forecast net profit for FY19 (+11% YoY). This also implies strong visibility for dividend yield, estimated at 3.6% in 2019 and rising.

 

Besides KSS, other security companies also gave a “BUY” recommendation on ADVANC. KT Zmico’s TP at ฿247.00/share, Asia Wealth and Trinity’s TP at ฿250.00/share while Finansia Syrus and LH’s TP at ฿260.00/share.