Intouch Holdings Buy (TP Bt62.20)
Company Update
Close Bt61.75
ICT
Earnings upgrade/Earnings downgrade/Overview unchanged
August 19, 2016
Singtel to acquire INTUCH Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
4.368
3.985
KT ZMICO vs. consensus Share data
13.1%
26.5%
Reuters / Bloomberg
INTU.BK/INTUCH TB
Paid‐up Shares (m)
3,206.42
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
198.00/5,721.00
Foreign limit / actual (%)
47.20/47.19
52 week High / Low (Bt)
81.00/44.50
Avg. daily T/O (shares 000)
13,699.00
NVDR (%)
16.60
Estimated free float (%)
54.35
Beta
1.54
URL
www.intouchcompany.com
CGR
Anti‐corruption
Level 4 (Certified)
Waraporn Wiboonkanarak Analyst, no. 2482
[email protected] 66 (0) 2624‐6273
Yield remains attractive Singtel’s acquisition of INTUCH will not have a material impact on the operations of INTUCH or ADVANC. Given that its share price has limited upside to our TP of Bt62, its 3.4% yield for the 1H16 operations remains attractive. Note that INTUCH will post the XD sign for its DPS of Bt2.13 on August 22. Singtel to acquire 21% of INTUCH Singapore Telecommunications Ltd (Singtel) announced yesterday through the Stock Exchange of Singapore that it will conditionally acquire 21% of INTUCH from Aspen Holding Ltd (Aspen), a wholly‐owned subsidiary of Temasek Holdings (Private). The deal is also packaged with the 7.39% acquisition of Bharti Telecom in India and Singtel’s new shares placement to the Temasek Group as part of the funding source so that its finances will not be strained. As these transactions are interdependent, all of them need to be fulfilled at the same time. The acquisition, subject to minority shareholder and regulatory approvals, is expected to be completed by December 2016. Singtel will pay Temasek Bt60.83 for each INTUCH share, worth a total of Bt41bn or approximately S$1.59bnm, out of a total deal size of S$2.47bn. …resulting in increasing exposure in ADVANC If the deal is completed, Singtel will not only be the largest shareholder of INTUCH, but its holdings in ADVANC will also increase to 31.8% from 23.3% currently. As Temasek is Singtel’s major shareholder, both shall be regarded as the same group; in our view, Singtel will not be obliged to make a tender offer for the remaining ADVANC shares. This deal will also not have a material effect on the operations of either INTUCH or ADVANC. The recent acquisition of mobile spectrum alongside extensive investment in the network will position ADVANC to capture the benefits from the fast‐growing data usage trend, which will support its long‐term earnings growth. Earnings to slow down in 2H16 INTUCH’s 2H16 earnings are likely to slow down in line with the deteriorating earnings of both ADVANC and THCOM. ADVANC will experience cost acceleration in 2H16, including the amortization of the 900‐MHz spectrum upfront fee and rising D&A given the continued 3G/4G network expansion. While the ramp up of additional capacity from new clients will partially offset the orders lost from GMM B and CTH, the upsurge of the depreciation of Thaicom8 will pressure the bottom line. 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 (%)
2014 12,194 14,761 4.60 4.74 ‐0.9% 4.39 10.68 2014 17.11 54.77 7.38 5.6% 60.9% 9.6%
2015 12,665 16,078 5.01 5.34 12.8% 4.63 11.02 2015 10.37 31.62 4.72 8.9% 64.1% 10.5%
2016E 12,457 15,833 4.94 3.70 ‐30.7% 4.01 10.41 2016E 11.95 55.07 5.67 6.8% 64.6% 40.7%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 4
2017E 13,499 16,173 5.04 3.83 3.5% 3.52 11.94 2017E 11.70 47.76 4.94 6.0% 62.3% 26.5%
2018E 13,814 15,650 4.88 3.67 ‐4.2% 3.52 13.30 2018E 12.09 51.86 4.44 6.0% 51.2% 12.5%
Figure 1: Singtel’s package deal
1
Subject to adjustments including but not limited to those arising from capital structure changes 2 Implied discount of 1.9%, 6.4% and 1.1% compared to the last closing price of THB62.00, INR345.45 and S$4.21 for INTUCH, Airtel and Singtel, respectively 3 Including adjustments for the balance of proceeds from BTL’s rights issue completed in February 2016
Source: Singapore Telecommunication Figure 2: INTUCH’s corporate structure
Source: Singtel and KT Zmico Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 4
Figure 3: INTUCH’s break‐up value based on subsidiaries’ fair value
ADVANC THCOM Unconsolidated net cash Total break‐up value Total break‐up value per share (Bt) Discount for holding company INTUCH's target price (Bt)
Total Shares (mn) 2,973 1,096
Fair Value (Bt) 180.00 36.70
Equity Value (Bt) 535,157 40,224
Source: KT Zmico Research
INTUCH's EV of INTUCH's holding holding 40.45% 216,471 41.14% 16,548 1,682 234,701 73.20 15% 62.22
Figure 4: PER and INTUCH’s discount to NAV
25.0
INTUCH's discount to NAV
PER (x) 0.0% ‐5.0% ‐10.0% +1.0SD = 16.4x ‐15.0% +2.0SD = 23.5x
20.0
15.0 Avearge= 12.9x 10.0
‐1.0SD = 9.4x ‐2.0SD = 5.9x
‐ 1/2/2008
+1SD=‐14.1%
‐20.0% ‐25.0% ‐30.0% ‐35.0% ‐40.0%
‐1SD=‐22.7% ‐3SD=‐31.3%
Ja n ‐ 1 0 Ju l‐ 1 0 Ja n ‐ 1 1 Ju l‐ 1 1 Ja n ‐ 1 2 Ju l‐ 1 2 Ja n ‐ 1 3 Ju l‐ 1 3 Ja n ‐ 1 4 Ju l‐ 1 4 Ja n ‐ 1 5 Ju l‐ 1 5 Ja n ‐ 1 6 Ju l‐ 1 6
5.0
+2SD=‐9.9%
1/2/2010 1/2/2012
1/2/2014
1/2/2016
Source: Bloomberg and KT Zmico Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 4
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, PACE, PLE, TPOLY, M‐CHAI, CI, EARTH. KT ZMICO is a co‐underwriter of ALT, EKH, RJH.
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 4 of 4
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
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Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.