Date of Report: October 21, 2024
Broker Name: Maybank Securities (Thailand) PCL
Company Overview
Advanced Info Service (ADVANC) is the second-largest mobile operator in Thailand, holding a 48% market share in mobile revenue as of 1Q24. The company also has diversified business interests in fixed-broadband (FBB) and enterprise services. ADVANC was originally the leading mobile operator until March 2023, when True Corporation merged with Total Access Communication (DTAC), overtaking ADVANC’s market share.
Recent Developments and Strategic Moves
- Acquisition of Triple T Broadband (TTTBB): In November 2023, ADVANC acquired TTTBB, becoming the number one player in the fixed-broadband market with a 46% market share as of 1Q24. This acquisition has contributed to a more diverse revenue stream beyond mobile services.
- Introduction of Personalized Prepaid Plans: ADVANC launched various personalized prepaid packages, such as a THB280 package with 20GB of data and unlimited usage for platforms like YouTube and TikTok. These initiatives aim to drive data usage growth and improve average revenue per user (ARPU).
- Sustainability Goals: The company promotes digital inclusion, expanding 5G coverage to 90% of the population and running programs to enhance cyber skills. It has set a goal to achieve net-zero emissions by 2050 and is working on a decarbonization roadmap.
Financial Performance
- Earnings Forecast for 3Q24: ADVANC is expected to report a core profit of THB8.4 billion, a 10% year-on-year increase but a slight 1% decline quarter-on-quarter. The core service revenue is projected to be THB30.7 billion, driven by the mobile, FBB, and enterprise segments.
- Price Competition and Revenue Trends: ADVANC faces intense competition, which has impacted its market position. However, easing competition and strong quarterly earnings momentum have supported recent stock performance.
- Financial Metrics and Growth Projections:
- Revenue Growth: Expected to grow by 12.1% in FY24 and 2.7% in FY25.
- EBITDA Growth: Anticipated growth of 17.9% in FY24 and 4.2% in FY25.
- Core Net Profit: Estimated to increase by 17.1% in FY24 and 10.7% in FY25.
- Net Debt to EBITDA: Projected to reduce from 2.4x at the end of FY23 to 1.6x by FY25, reflecting the company’s ability to generate strong free cash flow.
Key Upside and Downside Factors
- Upside Potential:
- Increase in Prepaid Data Prices: If prepaid data plan prices increase, there could be a boost to the company’s revenue forecast.
- Cheaper Spectrum Costs: ADVANC is expected to save THB1.7 billion per annum after winning the 2100MHz spectrum license. If the license cost in the upcoming auction is lower than expected (THB21 billion), this could further improve earnings in FY25-26.
- Downside Risks:
- Economic Recession: Economic downturns could negatively affect consumer spending on telecom services, impacting ADVANC’s revenue.
Competitive Landscape
- Valuation Comparison with Regional Peers: ADVANC trades at a premium, with a FY25E EV/EBITDA of 8.5x, which is 17% higher than the average of its regional peers (7.3x). Despite its strong financial metrics, the high valuation limits further upside, leading to a downgrade from “Buy” to “Hold.”
- Preference for TRUE over ADVANC: Analysts prefer TRUE over ADVANC due to TRUE’s lower valuation and stronger earnings momentum. TRUE’s merger with DTAC has also led to more significant synergy benefits, further enhancing its market position.
ESG (Environmental, Social, and Governance) Initiatives
- Sustainability Focus: ADVANC aims to achieve 8% of its revenue from new digital services by 2027. The company has made strides in green energy, increasing the use of renewable energy at its sites and promoting programs that reduce greenhouse gas emissions. It has also initiated programs to improve digital skills among the Thai population, reflecting its commitment to corporate social responsibility.
- Digital Inclusion and Cybersecurity: ADVANC is expanding projects that promote digital skills and cybersecurity awareness. For instance, the AUNJAI CYBER project has trained over 322,000 people in cyber skills, and the company aims to cover more by 2027.
Valuation and Investment Recommendation
- Current Stock Price: THB282.00
- Target Price: THB280.00 (HOLD)
- Dividend Yield: 4% for FY25E
- Discounted Cash Flow (DCF) Valuation: Maybank has maintained a target price of THB280 for ADVANC based on a DCF model using a 7.6% WACC and 2% terminal growth. Despite potential growth in earnings, the current premium valuation and limited upside lead to a “Hold” recommendation.
Conclusion
Advanced Info Service remains a dominant player in Thailand’s telecom sector with strong fundamentals, diversified business operations, and a focus on sustainability. However, increased competition, premium valuation, and potential economic headwinds temper the optimistic outlook. Investors may find better opportunities in competitors like TRUE, given their lower valuations and stronger projected earnings growth.
