Earnings to remain weak
Total Access Communication Sell (17E TP Bt28.50)
Company Update
Close Bt43.50
ICT
Earnings upgrade/Earnings downgrade/Overview unchanged
March 30, 2017
Earnings to remain weak Price Performance (%)
Weak earnings outlook We stand by our “SELL” rating given that DTAC’s weak earnings outlook remains due to continued losses of revenue market share. Our 2017E DCF‐ based target price is cut to Bt28 to reflect the recent earnings downgrade. Its success in securing TOT’s 2300MHz spectrum could cause the stock to be re‐rated. Adjusting marketing strategies to maintain market share Given the continued decline of its revenue market share, DTAC has become more aggressive in its marketing. Early this year, DTAC launched a campaign promoting its 4G super network using a very famous actress, Aum Patcharapa, as a presenter. Then, it introduced a new brand platform under the concept “Flip It” focusing on a customer‐centric approach. In light of this campaign, the firm has offered a “Go No Limit” service package and SIM “Go Plern” for unlimited internet usage without speed reductions as well as free calls within DTAC’s network. This package seems to be well received.
Source: SET Smart
FY17
FY18
Consensus EPS (Bt)
0.818
1.237
KT ZMICO vs. consensus Share data
‐18.1%
25.3%
Reuters / Bloomberg
DTAC.BK/DTAC TB
Paid‐up Shares (m)
2,367.81
Par (Bt)
2.00
Market cap (Bt bn / US$ m)
105.00/3,043.00
Foreign limit / actual (%)
49.00/45.20
52 week High / Low (Bt)
46.75/28.00
Avg. daily T/O (shares 000) NVDR (%)
14,901.00 4.81
Estimated free float (%)
29.36
Beta
1.46
URL
www.dtac.co.th
CGR
Level 4 (Certified)
Anti‐corruption
Waraporn Wiboonkanarak Analyst, no. 2482 [email protected] 66 (0) 2624‐6273
Focusing on securing more spectrum DTAC is one of the firms who have submitted bids to become a partner with TOT to provide wireless service under the 2300MHz spectrum. TOT will announce the shortlisted firms for the first round on April 12. The winner will be picked by the beauty contest method and subsequently announced in May. As the operator with the least license‐based spectrum, DTAC seems to be keen on clinching the deal. The acquisition of this spectrum will not only help DTAC to expand its capacity amidst the internet and data boom, but also mitigate long‐term business risk concerning the possibility of insufficient spectrum. Earnings projections revised down We expect DTAC’s 1Q17 earnings to remain weak. Intense competition in the cellular phone industry will force DTAC to continue its handset subsidy program, in our view. Meanwhile, regulatory costs are likely to exceed expectations due to the roaming with 1800MHz spectrum. These unfavorable factors prompted us to revise down our 2017E earnings projection by 69% and the 2018E projection by 10% (details in Figure 2). Nevertheless, the firm’s earnings are expected to rebound significantly in 2019E, mainly on the absence of amortization charged for assets under the concession. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) Norm EPS (Bt) Norm EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) P/BV (x) Dividend yield (%) ROE (%) Net gearing (%)
2015 87,753 5,893 2.49 2.61 ‐42.4% 2.41 11.50 2015 12.15 3.92 2.63 8.0% 20.7% 395.1%
2016 82,478 2,086 0.88 1.01 ‐61.3% 0.42 11.46 2016 47.11 4.63 3.62 1.0% 8.8% 324.6%
2017E 82,096 1,584 0.67 0.67 ‐33.9% 0.47 11.70 2017E 66.17 4.66 3.78 1.1% 5.8% 228.7%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2018E 82,496 3,679 1.55 1.55 132.3% 1.09 12.71 2018E 28.48 5.34 3.48 2.5% 12.7% 322.6%
2019E 82,693 6,868 2.90 2.90 86.7% 2.03 14.05 2019E 15.26 7.67 3.15 4.6% 21.7% 379.0%
Expect weak 1Q17E earnings We expect DTAC to post a net profit of Bt124mn in 1Q17E, plunging by 90%YoY. Revenue excluding IC is expected to have fallen by 1.3%YoY while costs were on the rise, i.e., both regulatory costs and network expansion costs. Meanwhile, sales expenses should have accelerated alongside the two aforementioned marketing campaigns; however, this should be partially offset by lower administrative cost due to last year’s headcount optimization. Therefore, SG&A to revenue is projected to have remained stable at 21%. Furthermore, DTAC has continued to subsidize handsets, with a focus on post‐ paid customers. Therefore, we expect the loss from handset sales to have deepened from ‐4% in 1Q16 to ‐8%. On a QoQ basis, the firm’s core profit is expected to have declined by 26% on the back of the increase in expenses related to network expansion, which may have offset the smaller subsidy size for handsets. Figure 1: Earnings preview Profit and Loss Statement (Btmn) Fiscal Year‐Ended Dec. 1Q16 Service Revenue 17,621 Sales 3,836 Revenue 21,676 Gross Profit 6,373 EBITDA 7,327 1,256 Net profit (loss) Core profit (loss) 1,183 Reported EPS (THB) 0.53 Gross margin (%) 29.4% EBITDA margin (%) 33.8% Net margin (%) 5.8% Current ratio (x) 0.72 4.73 Interest coverage (x) Debt to equity (x) 3.22 BVPS (Bt) 11.51 ROE (%) 20.8%
2Q16 17,195 2,331 19,799 5,326 6,606 141 539 0.06 26.9% 33.4% 0.7% 0.74 1.42 3.14 11.57 17.5%
3Q16 17,320 1,949 19,537 5,288 7,226 659 652 0.28 27.1% 37.0% 3.4% 0.84 3.21 3.23 11.43 13.2%
4Q16 17,116 4,064 21,465 4,645 6,757 30 169 0.01 21.6% 31.5% 0.1% 0.83 0.93 3.26 11.44 11.2%
1Q17E 17,151 3,861 21,287 4,853 7,046 124 124 0.05 22.8% 33.1% 0.6% 0.85 1.42 3.21 11.49 7.7%
%QoQ 0.2% ‐5.0% ‐0.8% 4.5% 4.3% 312.9% ‐26.4% 312.9% 1.2% 1.6% 0.4%
0.5%
%YoY ‐2.7% 0.6% ‐1.8% ‐23.9% ‐3.8% ‐90.1% ‐89.5% ‐90.1% ‐6.6% ‐0.7% ‐5.2%
2017E 68,822 12,242 82,096 20,735 27,432 1,584 1,584 0.67 25.3% 33.4% 1.9% 1.05 2.30 3.13 0.5% 11.70 5.8%
YTD %YoY (% of 2017E) ‐0.6% 24.9% 0.5% 31.5% ‐0.5% 25.9% ‐4.1% 23.4% ‐1.7% 25.7% ‐24.1% 7.8% ‐33.9% 7.8% ‐24.1% 7.8% ‐1.0% ‐0.4% ‐0.6%
2.1%
Source: DTAC and KT Zmico Research Figure 2: Earnings revision 2017E Ended Dec Previous New Revenue (Btmn) 83,629 82,096 EBITDA (Btmn) 30,464 27,432 Net profit (Btmn) 3,727 1,584 % growth 44.4% ‐24.1% Core profit (Btmn) 3,727 1,584 % growth 28.6% ‐33.9% Core EPS (Bt) 1.57 0.67 Core EPS growth (%) 28.6% ‐33.9% Gross margin (%) 28.5% 25.3% 36.4% 33.4% EBITDA margin (%) SG&A exp to sales (%) 21.4% 21.4% Source: Bloomberg and KT Zmico Research
%chg ‐1.8% ‐10.0% ‐57.5% ‐68.5% ‐57.5% ‐62.5% ‐57.4% ‐62.5% ‐3.2% ‐3.0% 0.0%
Previous 83,213 29,742 4,083 73.2% 4,083 52.3% 1.72 52.3% 28.0% 35.7% 21.1%
2018E New 82,496 27,165 3,679 132.3% 3,679 132.3% 1.55 132.3% 28.7% 32.9% 21.3%
%chg ‐0.9% ‐8.7% ‐9.9% 59.1% ‐9.9% 80.0% ‐9.9% 80.0% 0.7% ‐2.8% 0.2%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
Figure 3: PER and EV/EBITDA band
Source: Bloomberg and KT Zmico Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
Financial Summary PROFIT & LOSS (Btm) Revenues Cos t of s a l es a nd s ervi ce Gross profit SG&A EBITDA Depreci a ti on & a morti za tion EBIT Interes t expens e Other income / exp. EBT Corpora te ta x Net profit Reported EPS Full y dil uted EPS Core net profit Core EPS Di vi dend (Bt)
2015 87,753 (62,522) 25,231 (16,408) 27,941 (18,796) 9,120 (1,384) 161 7,740 (1,557) 5,893 2.49 2.49 6,188 2.61 2.41
2016 82,478 (60,846) 21,632 (17,796) 27,915 (23,202) 4,064 (1,567) 58 2,508 (506) 2,086 0.88 0.88 2,396 1.01 0.42
2017E 82,096 (61,362) 20,735 (17,532) 27,432 (24,106) 3,479 (1,511) 123 1,979 (396) 1,584 0.67 0.67 1,584 0.67 0.47
2018E 82,496 (58,827) 23,668 (17,582) 27,165 (20,955) 6,348 (1,760) 124 4,599 (920) 3,679 1.55 1.55 3,679 1.55 1.09
2019E 82,693 (53,511) 29,182 (18,185) 21,501 (10,255) 11,246 (2,673) 124 8,585 (1,717) 6,868 2.90 2.90 6,868 2.90 2.03
BALANCE SHEET (Btm) Inventories PP&E‐net Total assets ST debt & current porti on Long‐term debt Total liabilities Shareholder equity Total liab. & shareholder equity
2015 2,826 28,495 110,965 15,000 33,000 83,742 27,221 110,965
2016 2,063 37,623 115,369 165 49,000 88,224 27,144 115,369
2017E 2,107 47,837 114,308 2,000 47,000 86,599 27,708 114,308
2018E 1,868 60,045 155,469 24,100 45,500 125,369 30,099 155,469
2019E 2,247 80,752 190,084 26,600 79,100 156,807 33,276 190,084
CASH FLOW (Btm) EBIT Depreci a ti on & a morti za tion Cha nge i n worki ng ca pi ta l FX, non‐ca s h a djus tment & others Cash flow from operations Ca pex (Inves t)/Di ves t Others Cash flow from investing Debt fina nci ng (repa yment) Equi ty fi na ncing Di vi dend pa yment Others Cash flow from financing Net cha nge i n ca s h Free cash flow FCF per share (Bt)
2015 9,120 18,796 12,632 (15,772) 24,776 (12,304) (11,269) (23,572) 9,336 0 (11,242) 5,000 3,094 4,297 12,472 5.27
2016 4,064 23,202 23,007 (23,647) 26,626 (11,401) (5,991) (17,392) (14,835) 0 (2,226) 16,000 (1,061) 8,173 15,224 6.43
2017E 3,479 24,106 17,743 (20,393) 24,935 (17,000) 915 (16,085) 1,835 0 (1,020) (2,000) (1,185) 7,666 7,935 3.35
2018E 6,348 20,955 (13,017) 9,113 23,399 (20,000) (19,279) (39,279) 22,100 0 (1,288) (1,500) 19,312 3,433 3,399 1.44
2019E 11,246 10,255 9,911 (7,097) 24,315 (30,000) (9,700) (39,700) 2,500 0 (3,691) 33,600 32,409 17,023 ‐5,685 ‐2.40
PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gros s ma rgi n (%) EBITDA ma rgin (%) Opera ti ng ma rgi n (%) Net ma rgi n (%) Core profi t ma rgi n (%) Effecti ve ta x ra te (%)
2015 (2.9) (9.6) (45.1) 28.8 31.8 10.1 6.7 7.1 20.1
2016 (6.0) (0.1) (64.6) 26.2 33.8 4.7 2.5 2.9 20.2
2017E (0.5) (1.7) (24.1) 25.3 33.4 3.9 1.9 1.9 20.0
2018E 0.5 (1.0) 132.3 28.7 32.9 7.4 4.5 4.5 20.0
2019E 0.2 (20.9) 86.7 35.3 25.9 13.3 8.3 8.3 20.0
FINANCIAL QUALITY Net debt (Ca s h) (Btm) Net debt to equi ty (x) Interes t covera ge (x)
37,879 3.95 6.59
30,872 3.25 2.59
23,041 2.29 2.30
40,208 3.23 3.61
59,285 3.79 4.21
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, M‐CHAI, POMPUI, TFD, CI. KT ZMICO is a co‐underwriter of the TPIPP.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
KT ZMICO Securities Company Limited Head Office
WWW.KTZMICO.COM
8th, 15th‐17th,19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok, Thailand 10500 Telephone: (66‐2) 695‐5000 Fax: (66‐2) 695‐5173 KT ZMICO Connect 662 695 5555
Central World Branch
Amarin Branch
22nd Floor, Amarin Building, 496‐502 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 018‐6200 Fax: (66‐2) 018‐6298, (66‐2) 018‐6299
8th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 626‐6000 Fax: (66‐2) 626‐6111
Phaholyothin Branch
Sindhorn Branch
Viphavadee Branch
2nd Floor, Sindhorn Tower 1, 130‐132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 627‐3550 Fax: (66‐2) 627‐3582, 627‐3600
G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee‐Rangsit Road, Ladyao, Jatujak, Bangkok 10900 Telephone: (66‐2) 013‐8600 Fax: (66‐2) 618‐8569
BangKhae Branch
Chiang Mai Branch
Pak Chong Branch
999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan, Bangkok 10330 Telephone: (66‐2) 264‐5888 Fax: (66‐2) 264 5899
1291/1, Shinnawatra Tower II, 3rd Floor, Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66‐2) 686‐1500 Fax: (66‐2) 686‐1666
Ploenchit Branch
518 The Mall Group Building Bangkhae Branch, 6th Floor, Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Telephone: (66‐2) 454‐9979 Fax: (66‐2) 454‐9970
422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai 50100 Telephone: (053) 270‐072 Fax: (053) 272‐618
173 175, Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Telephone: (044) 279‐511 Fax: (044) 279‐574
Korat Branch
Khon Kaen Branch
Chonburi Branch
624/9 Changphuek Road, T.Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171
5th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000 Telephone: (043) 389‐171‐193 Fax: (043) 389‐209
4th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287‐635 Fax: (038) 287‐637
Pattaya Branch
Chachoengsao Branch
Hat Yai Branch
Easy Point 2, 392/65 Moo.9, T.Nong Prue, A. Bang Lamung, Chonburi 20260 Telephone: (038) 420‐965 Fax: (038) 420‐968
108/34‐36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao 24000 Telephone: (038) 813‐088 Fax: (038) 813‐099
200/301, 200/303 JULDIS HATYAI PLAZA Floor 3 , Niphat‐Uthit 3 Rd, Hatyai Songkhla 90110 Telephone: (074) 355530‐3 Fax: (074) 355534
Phuket Branch
22/61‐63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket 83000 Telephone: (076) 222‐811, (076) 222‐683 Fax: (076) 222‐861
Phitsanulok Branch
227/171 Borom Trilokkanat Road, Muang, Phitsanulok 65000 Telephone: 055‐219‐255 to 8 Fax: 055‐219‐259
Nakhon Pathom
Cyber Branch Ayutthaya
Cyber Branch @ North Nana
Cyber Branch Chiangrai
KrungThai Bank, Rojana Branch 253 Moo 5, Rojana Road, Phai Ling, Phra Nakhon Si Ayutthaya, Phra Nakhonsi Ayutthaya, 13000 Telephone: 035‐242‐477 Fax: 035‐242‐476
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd., Klong Toey Nua Subdistrict , Wattana District , Bangkok 10110 Telephone: 083‐490‐2871
River Hotel (Building 3rd),1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
KrungThai Bank, Hayaek Phokhun Mengrai Branch 116/19 Moo 19, Highway 110 Road, Rop Wiang, Mueang Chiang Rai, Chiang Rai, 57000 Telephone: 053‐715‐067 Fax: 053‐715‐068
Company Update
Close Bt43.50
ICT
Earnings upgrade/Earnings downgrade/Overview unchanged
March 30, 2017
Earnings to remain weak Price Performance (%)
Weak earnings outlook We stand by our “SELL” rating given that DTAC’s weak earnings outlook remains due to continued losses of revenue market share. Our 2017E DCF‐ based target price is cut to Bt28 to reflect the recent earnings downgrade. Its success in securing TOT’s 2300MHz spectrum could cause the stock to be re‐rated. Adjusting marketing strategies to maintain market share Given the continued decline of its revenue market share, DTAC has become more aggressive in its marketing. Early this year, DTAC launched a campaign promoting its 4G super network using a very famous actress, Aum Patcharapa, as a presenter. Then, it introduced a new brand platform under the concept “Flip It” focusing on a customer‐centric approach. In light of this campaign, the firm has offered a “Go No Limit” service package and SIM “Go Plern” for unlimited internet usage without speed reductions as well as free calls within DTAC’s network. This package seems to be well received.
Source: SET Smart
FY17
FY18
Consensus EPS (Bt)
0.818
1.237
KT ZMICO vs. consensus Share data
‐18.1%
25.3%
Reuters / Bloomberg
DTAC.BK/DTAC TB
Paid‐up Shares (m)
2,367.81
Par (Bt)
2.00
Market cap (Bt bn / US$ m)
105.00/3,043.00
Foreign limit / actual (%)
49.00/45.20
52 week High / Low (Bt)
46.75/28.00
Avg. daily T/O (shares 000) NVDR (%)
14,901.00 4.81
Estimated free float (%)
29.36
Beta
1.46
URL
www.dtac.co.th
CGR
Level 4 (Certified)
Anti‐corruption
Waraporn Wiboonkanarak Analyst, no. 2482 [email protected] 66 (0) 2624‐6273
Focusing on securing more spectrum DTAC is one of the firms who have submitted bids to become a partner with TOT to provide wireless service under the 2300MHz spectrum. TOT will announce the shortlisted firms for the first round on April 12. The winner will be picked by the beauty contest method and subsequently announced in May. As the operator with the least license‐based spectrum, DTAC seems to be keen on clinching the deal. The acquisition of this spectrum will not only help DTAC to expand its capacity amidst the internet and data boom, but also mitigate long‐term business risk concerning the possibility of insufficient spectrum. Earnings projections revised down We expect DTAC’s 1Q17 earnings to remain weak. Intense competition in the cellular phone industry will force DTAC to continue its handset subsidy program, in our view. Meanwhile, regulatory costs are likely to exceed expectations due to the roaming with 1800MHz spectrum. These unfavorable factors prompted us to revise down our 2017E earnings projection by 69% and the 2018E projection by 10% (details in Figure 2). Nevertheless, the firm’s earnings are expected to rebound significantly in 2019E, mainly on the absence of amortization charged for assets under the concession. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) Norm EPS (Bt) Norm EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) P/BV (x) Dividend yield (%) ROE (%) Net gearing (%)
2015 87,753 5,893 2.49 2.61 ‐42.4% 2.41 11.50 2015 12.15 3.92 2.63 8.0% 20.7% 395.1%
2016 82,478 2,086 0.88 1.01 ‐61.3% 0.42 11.46 2016 47.11 4.63 3.62 1.0% 8.8% 324.6%
2017E 82,096 1,584 0.67 0.67 ‐33.9% 0.47 11.70 2017E 66.17 4.66 3.78 1.1% 5.8% 228.7%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2018E 82,496 3,679 1.55 1.55 132.3% 1.09 12.71 2018E 28.48 5.34 3.48 2.5% 12.7% 322.6%
2019E 82,693 6,868 2.90 2.90 86.7% 2.03 14.05 2019E 15.26 7.67 3.15 4.6% 21.7% 379.0%
Expect weak 1Q17E earnings We expect DTAC to post a net profit of Bt124mn in 1Q17E, plunging by 90%YoY. Revenue excluding IC is expected to have fallen by 1.3%YoY while costs were on the rise, i.e., both regulatory costs and network expansion costs. Meanwhile, sales expenses should have accelerated alongside the two aforementioned marketing campaigns; however, this should be partially offset by lower administrative cost due to last year’s headcount optimization. Therefore, SG&A to revenue is projected to have remained stable at 21%. Furthermore, DTAC has continued to subsidize handsets, with a focus on post‐ paid customers. Therefore, we expect the loss from handset sales to have deepened from ‐4% in 1Q16 to ‐8%. On a QoQ basis, the firm’s core profit is expected to have declined by 26% on the back of the increase in expenses related to network expansion, which may have offset the smaller subsidy size for handsets. Figure 1: Earnings preview Profit and Loss Statement (Btmn) Fiscal Year‐Ended Dec. 1Q16 Service Revenue 17,621 Sales 3,836 Revenue 21,676 Gross Profit 6,373 EBITDA 7,327 1,256 Net profit (loss) Core profit (loss) 1,183 Reported EPS (THB) 0.53 Gross margin (%) 29.4% EBITDA margin (%) 33.8% Net margin (%) 5.8% Current ratio (x) 0.72 4.73 Interest coverage (x) Debt to equity (x) 3.22 BVPS (Bt) 11.51 ROE (%) 20.8%
2Q16 17,195 2,331 19,799 5,326 6,606 141 539 0.06 26.9% 33.4% 0.7% 0.74 1.42 3.14 11.57 17.5%
3Q16 17,320 1,949 19,537 5,288 7,226 659 652 0.28 27.1% 37.0% 3.4% 0.84 3.21 3.23 11.43 13.2%
4Q16 17,116 4,064 21,465 4,645 6,757 30 169 0.01 21.6% 31.5% 0.1% 0.83 0.93 3.26 11.44 11.2%
1Q17E 17,151 3,861 21,287 4,853 7,046 124 124 0.05 22.8% 33.1% 0.6% 0.85 1.42 3.21 11.49 7.7%
%QoQ 0.2% ‐5.0% ‐0.8% 4.5% 4.3% 312.9% ‐26.4% 312.9% 1.2% 1.6% 0.4%
0.5%
%YoY ‐2.7% 0.6% ‐1.8% ‐23.9% ‐3.8% ‐90.1% ‐89.5% ‐90.1% ‐6.6% ‐0.7% ‐5.2%
2017E 68,822 12,242 82,096 20,735 27,432 1,584 1,584 0.67 25.3% 33.4% 1.9% 1.05 2.30 3.13 0.5% 11.70 5.8%
YTD %YoY (% of 2017E) ‐0.6% 24.9% 0.5% 31.5% ‐0.5% 25.9% ‐4.1% 23.4% ‐1.7% 25.7% ‐24.1% 7.8% ‐33.9% 7.8% ‐24.1% 7.8% ‐1.0% ‐0.4% ‐0.6%
2.1%
Source: DTAC and KT Zmico Research Figure 2: Earnings revision 2017E Ended Dec Previous New Revenue (Btmn) 83,629 82,096 EBITDA (Btmn) 30,464 27,432 Net profit (Btmn) 3,727 1,584 % growth 44.4% ‐24.1% Core profit (Btmn) 3,727 1,584 % growth 28.6% ‐33.9% Core EPS (Bt) 1.57 0.67 Core EPS growth (%) 28.6% ‐33.9% Gross margin (%) 28.5% 25.3% 36.4% 33.4% EBITDA margin (%) SG&A exp to sales (%) 21.4% 21.4% Source: Bloomberg and KT Zmico Research
%chg ‐1.8% ‐10.0% ‐57.5% ‐68.5% ‐57.5% ‐62.5% ‐57.4% ‐62.5% ‐3.2% ‐3.0% 0.0%
Previous 83,213 29,742 4,083 73.2% 4,083 52.3% 1.72 52.3% 28.0% 35.7% 21.1%
2018E New 82,496 27,165 3,679 132.3% 3,679 132.3% 1.55 132.3% 28.7% 32.9% 21.3%
%chg ‐0.9% ‐8.7% ‐9.9% 59.1% ‐9.9% 80.0% ‐9.9% 80.0% 0.7% ‐2.8% 0.2%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
Figure 3: PER and EV/EBITDA band
Source: Bloomberg and KT Zmico Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
Financial Summary PROFIT & LOSS (Btm) Revenues Cos t of s a l es a nd s ervi ce Gross profit SG&A EBITDA Depreci a ti on & a morti za tion EBIT Interes t expens e Other income / exp. EBT Corpora te ta x Net profit Reported EPS Full y dil uted EPS Core net profit Core EPS Di vi dend (Bt)
2015 87,753 (62,522) 25,231 (16,408) 27,941 (18,796) 9,120 (1,384) 161 7,740 (1,557) 5,893 2.49 2.49 6,188 2.61 2.41
2016 82,478 (60,846) 21,632 (17,796) 27,915 (23,202) 4,064 (1,567) 58 2,508 (506) 2,086 0.88 0.88 2,396 1.01 0.42
2017E 82,096 (61,362) 20,735 (17,532) 27,432 (24,106) 3,479 (1,511) 123 1,979 (396) 1,584 0.67 0.67 1,584 0.67 0.47
2018E 82,496 (58,827) 23,668 (17,582) 27,165 (20,955) 6,348 (1,760) 124 4,599 (920) 3,679 1.55 1.55 3,679 1.55 1.09
2019E 82,693 (53,511) 29,182 (18,185) 21,501 (10,255) 11,246 (2,673) 124 8,585 (1,717) 6,868 2.90 2.90 6,868 2.90 2.03
BALANCE SHEET (Btm) Inventories PP&E‐net Total assets ST debt & current porti on Long‐term debt Total liabilities Shareholder equity Total liab. & shareholder equity
2015 2,826 28,495 110,965 15,000 33,000 83,742 27,221 110,965
2016 2,063 37,623 115,369 165 49,000 88,224 27,144 115,369
2017E 2,107 47,837 114,308 2,000 47,000 86,599 27,708 114,308
2018E 1,868 60,045 155,469 24,100 45,500 125,369 30,099 155,469
2019E 2,247 80,752 190,084 26,600 79,100 156,807 33,276 190,084
CASH FLOW (Btm) EBIT Depreci a ti on & a morti za tion Cha nge i n worki ng ca pi ta l FX, non‐ca s h a djus tment & others Cash flow from operations Ca pex (Inves t)/Di ves t Others Cash flow from investing Debt fina nci ng (repa yment) Equi ty fi na ncing Di vi dend pa yment Others Cash flow from financing Net cha nge i n ca s h Free cash flow FCF per share (Bt)
2015 9,120 18,796 12,632 (15,772) 24,776 (12,304) (11,269) (23,572) 9,336 0 (11,242) 5,000 3,094 4,297 12,472 5.27
2016 4,064 23,202 23,007 (23,647) 26,626 (11,401) (5,991) (17,392) (14,835) 0 (2,226) 16,000 (1,061) 8,173 15,224 6.43
2017E 3,479 24,106 17,743 (20,393) 24,935 (17,000) 915 (16,085) 1,835 0 (1,020) (2,000) (1,185) 7,666 7,935 3.35
2018E 6,348 20,955 (13,017) 9,113 23,399 (20,000) (19,279) (39,279) 22,100 0 (1,288) (1,500) 19,312 3,433 3,399 1.44
2019E 11,246 10,255 9,911 (7,097) 24,315 (30,000) (9,700) (39,700) 2,500 0 (3,691) 33,600 32,409 17,023 ‐5,685 ‐2.40
PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gros s ma rgi n (%) EBITDA ma rgin (%) Opera ti ng ma rgi n (%) Net ma rgi n (%) Core profi t ma rgi n (%) Effecti ve ta x ra te (%)
2015 (2.9) (9.6) (45.1) 28.8 31.8 10.1 6.7 7.1 20.1
2016 (6.0) (0.1) (64.6) 26.2 33.8 4.7 2.5 2.9 20.2
2017E (0.5) (1.7) (24.1) 25.3 33.4 3.9 1.9 1.9 20.0
2018E 0.5 (1.0) 132.3 28.7 32.9 7.4 4.5 4.5 20.0
2019E 0.2 (20.9) 86.7 35.3 25.9 13.3 8.3 8.3 20.0
FINANCIAL QUALITY Net debt (Ca s h) (Btm) Net debt to equi ty (x) Interes t covera ge (x)
37,879 3.95 6.59
30,872 3.25 2.59
23,041 2.29 2.30
40,208 3.23 3.61
59,285 3.79 4.21
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, M‐CHAI, POMPUI, TFD, CI. KT ZMICO is a co‐underwriter of the TPIPP.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
KT ZMICO Securities Company Limited Head Office
WWW.KTZMICO.COM
8th, 15th‐17th,19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok, Thailand 10500 Telephone: (66‐2) 695‐5000 Fax: (66‐2) 695‐5173 KT ZMICO Connect 662 695 5555
Central World Branch
Amarin Branch
22nd Floor, Amarin Building, 496‐502 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 018‐6200 Fax: (66‐2) 018‐6298, (66‐2) 018‐6299
8th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 626‐6000 Fax: (66‐2) 626‐6111
Phaholyothin Branch
Sindhorn Branch
Viphavadee Branch
2nd Floor, Sindhorn Tower 1, 130‐132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 627‐3550 Fax: (66‐2) 627‐3582, 627‐3600
G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee‐Rangsit Road, Ladyao, Jatujak, Bangkok 10900 Telephone: (66‐2) 013‐8600 Fax: (66‐2) 618‐8569
BangKhae Branch
Chiang Mai Branch
Pak Chong Branch
999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan, Bangkok 10330 Telephone: (66‐2) 264‐5888 Fax: (66‐2) 264 5899
1291/1, Shinnawatra Tower II, 3rd Floor, Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66‐2) 686‐1500 Fax: (66‐2) 686‐1666
Ploenchit Branch
518 The Mall Group Building Bangkhae Branch, 6th Floor, Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Telephone: (66‐2) 454‐9979 Fax: (66‐2) 454‐9970
422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai 50100 Telephone: (053) 270‐072 Fax: (053) 272‐618
173 175, Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Telephone: (044) 279‐511 Fax: (044) 279‐574
Korat Branch
Khon Kaen Branch
Chonburi Branch
624/9 Changphuek Road, T.Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171
5th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000 Telephone: (043) 389‐171‐193 Fax: (043) 389‐209
4th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287‐635 Fax: (038) 287‐637
Pattaya Branch
Chachoengsao Branch
Hat Yai Branch
Easy Point 2, 392/65 Moo.9, T.Nong Prue, A. Bang Lamung, Chonburi 20260 Telephone: (038) 420‐965 Fax: (038) 420‐968
108/34‐36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao 24000 Telephone: (038) 813‐088 Fax: (038) 813‐099
200/301, 200/303 JULDIS HATYAI PLAZA Floor 3 , Niphat‐Uthit 3 Rd, Hatyai Songkhla 90110 Telephone: (074) 355530‐3 Fax: (074) 355534
Phuket Branch
22/61‐63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket 83000 Telephone: (076) 222‐811, (076) 222‐683 Fax: (076) 222‐861
Phitsanulok Branch
227/171 Borom Trilokkanat Road, Muang, Phitsanulok 65000 Telephone: 055‐219‐255 to 8 Fax: 055‐219‐259
Nakhon Pathom
Cyber Branch Ayutthaya
Cyber Branch @ North Nana
Cyber Branch Chiangrai
KrungThai Bank, Rojana Branch 253 Moo 5, Rojana Road, Phai Ling, Phra Nakhon Si Ayutthaya, Phra Nakhonsi Ayutthaya, 13000 Telephone: 035‐242‐477 Fax: 035‐242‐476
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd., Klong Toey Nua Subdistrict , Wattana District , Bangkok 10110 Telephone: 083‐490‐2871
River Hotel (Building 3rd),1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
KrungThai Bank, Hayaek Phokhun Mengrai Branch 116/19 Moo 19, Highway 110 Road, Rop Wiang, Mueang Chiang Rai, Chiang Rai, 57000 Telephone: 053‐715‐067 Fax: 053‐715‐068
