20150316-大和证券-New_era,_same_yield_play_21页_281kb

Advanced Info Service (ADVANC TB) Summary

Core Content

Advanced Info Service (ADVANC TB) is a leading telecommunications company in Thailand, currently transitioning from a 2G-3G era to a data-driven cycle. Despite the heavy capital expenditures (capex) and modest earnings growth, the company remains a strong high-yield investment due to its stable dividend policy and robust financial position.

Main Points

• Dividend Yield: ADVANC is still viewed as a high-yield play with a forecast dividend yield of over 5% in 2015, rising to 6.5% from 2017 onward.
• Capex and Investment: The company is investing heavily in the new data cycle, with an expected Bt107bn in capex over the next three years, including Bt65bn in 2013-14 and Bt40bn in 2015. The capex will be allocated to base stations, super WiFi, and fixed broadband.
• Earnings Growth: Earnings growth is expected to be modest in 2015-16 at 7% and 10% respectively, but to accelerate in 2017-18 at 11% p.a. due to improved data monetization and fixed broadband contributions.
• Fixed Broadband Strategy: ADVANC is entering the fixed broadband market with a competitive edge due to its existing fiber-optic infrastructure. The company expects a proper take-off of this business in 2017 with a market share of one-third, and a significant contribution from 2018 onward.
• 4G Auctions: The 4G 1800MHz auction is expected to occur in 1Q16, and the 900MHz auction in 2Q16. ADVANC is projected to pay Bt14bn for the 4G licenses, with the 900MHz auction also expected to be similar in price. The delay in the auction could lead to a remedy period for its 2G business, preventing an earnings boost in 2016.
• Network Transition: ADVANC is expected to complete the migration of 97% of its 2G SIM cards to 3G by 2016, which will help in reducing capex to sales ratio and improve EBITDA margins.
• Competitive Landscape: The fixed broadband market has a low penetration rate of 24%, and ADVANC is well-positioned to capture a significant share due to its strong brand, large customer base, and efficient distribution channels.
• Valuation: The company's 12-month target price (TP) is raised to Bt275/share, reflecting improved earnings prospects and a higher dividend yield. The TP implies a 14.6% share price upside from its current level.

Key Information

• Dividend Yield: Forecast to be 5.4% in 2015, rising to over 6.5% from 2017 onward.
• Capex Projections:
  • 2015: Bt40bn (Bt39bn for base stations and super WiFi, Bt1bn for fixed broadband)
  • 2016: Bt37bn (Bt20bn for network capex, Bt3bn for fixed broadband, and 50% of the 1800MHz and 900MHz auction prices)
• Earnings Growth:
  • 2015-16: 7% and 10% respectively
  • 2017-18: 11% p.a. due to fixed broadband and improved data monetization
• Fixed Broadband Contribution:
  • Expected to reach 1.3% in 2016 and 8.3% in 2018
• Market Penetration:
  • Fixed broadband penetration is currently at 24%, offering a large growth potential
• TP and Valuation:
  • 12-month DDM-based TP is raised to Bt275/share
  • EV/EBITDA ratio is expected to remain stable around 10.7x
  • Net debt to EBITDA ratio is projected to stay below 2x

Conclusion

Despite the challenges of transitioning into a new data cycle, ADVANC remains a "safe", high-yield investment. The company is expected to maintain a strong dividend yield, with limited financial risk due to its conservative capex and stable payout ratio. The fixed broadband business is anticipated to become a major growth driver from 2018 onward, and the company is well-positioned to capitalize on the growing demand for data services. The BUY recommendation is reaffirmed due to its attractive yield and strong long-term growth prospects.