ADVANC: Minimal Downside on Acquiring New Spectrums, Analyst Recomm. “BUY” at ฿268

KGI Securities (KGI) has given an “Outperform” rating on Advanced Info Service Public Company Limited (ADVANC) with a target price of ฿268.00/share (17.0% upside).

 

ADVANC posted a 3Q19 net profit of Bt8.8bn (+14% QoQ, +29% YoY). The result was 3% below KGI’s estimate, but 3% above the consensus. The 9M19 net profit accounted for 73% of the full-year forecast.

KGI maintains its earnings forecasts at Bt33.1bn (+12% YoY) in 2019 and Bt35.9bn (+8% YoY) in 2020. KGI foresees minimal impact from acquiring the 2600 MHz and 26 MHz to the 2020 profit forecast. Thus, KGI reiterates a rating of Outperform for ADVANC with a 2020 target price of Bt268.00 (DCF, WACC 7.6%).

 

Breaking Down
ADVANC posted a 3Q19 net profit of Bt8.8bn (+14% QoQ, +29% YoY) (including extra benefit after tax of Bt383mn mainly due to benefit from dispute settlement with TOT Plc.) The result was 3% below KGI’s estimate, but 3% above the market consensus.

Excluding extra items, ADVANC’s 3Q19 core profit was Bt8.4bn (+2% QoQ, +21% YoY). Growth QoQ was driven by revenue increasing to Bt44.7bn (+2% QoQ) while costs declined 1% QoQ. The YoY growth in core profit was driven by i) 6% YoY increase in revenues thanks to growth from both services revenue and handset sales, and ii) 7% YoY decline in SG&A as the company had high marketing expenses in 3Q18 to attract subscribers.

 

ADVANC had 0.09mn net additional subscribers in 3Q19, down from 0.55mn in 3Q18, which had been pushed by marketing campaigns, but better than the decline of 0.03mn in 2Q19 due to lower churn of prepaid clients. The company had 41.6mn (+0.2 QoQ, +2.2% YoY) total clients in 3Q19, while Average Revenue Per User (ARPU) was Bt254 (-2.0% QoQ, flat YoY).

The 9M19 net profit accounted for 73% of the full-year forecast. KGI maintains its forecast for 2019 at Bt33.1bn (+12% YoY) and 2020, net profit is expected to climb to Bt35.9bn (+8% YoY) backed by increases in service revenue and client base while ARPU is also expected to climb.

Based on the National Broadcasting and Telecommunication Commission (NBTC)’s preliminary conditions for the auction for 700 MHz, 1800 MHz, 2600 MHz and 26 GHz in 1Q20, KGI expects ADVANC to enter bids for 2600 MHz and 26 GHz as it already has 700 MHz and 1800 MHz in hand.

Based on the reserve price of Bt1.86bn/license for 2600 MHz and Bt0.3bn/license for 26 GHz and assuming that ADVANC would acquire 1/3 of licenses for each spectrum, KGI estimates the dilution to the 2020 earnings forecast to be only 1.3%.

 

Risks
1) Lower than expected revenue.
2) More intense competition.