KTB Securities (Thailand) (KTBST) has upgraded True Corporation Public Company Limited (TRUE)’s a recommendation from “HOLD” to “BUY” with a target price of ฿6.80/share (28.30% upside from the closing price last Friday at ฿5.30/share.).
KTBST states that TRUE is now a laggard play because its share price has corrected more than peers’ (-18% vs -7% for peers). Like its rivals, 3Q19 earnings should improve both YoY and QoQ on the back of recovering revenue led by higher ARPU and better control of costs, especially handset subsidies. KTBST retains its view that TRUE would report Bt1.6b core profit for FY19F, the first profit in several years.
KTBST expects TRUE to book Bt5.46b net profit for 3Q19, up 1320% YoY and 416% QoQ. The stellar growth would be driven by a one-time Bt5b gain (after tax) from the sale of assets to its infrastructure fund (DIF).
TRUE might also book asset impairment charges for obsolete assets in the online unit but KTBST does not have sufficient information to estimate that. Stripping out the extra gain, core profit should come in at Bt451m, turning around from Bt249m core loss in 3Q18 and growing 36% QoQ. The YoY turnaround would due to smaller loss from handset subsidies while QoQ growth would be driven by higher revenue from the mobile segment.
KTB’s key assumptions for 3Q19F are: (i) service revenue would grow 3% QoQ and 1% YoY underpinned by mobile segment (+4% YoY, +3% QoQ); (ii) operating cost would rise 2.4% YoY and 2% QoQ due to rising network opex and rental expense; (iii) SG&A costs would drop 19% YoY due to much smaller handset subsidies.
Based on KTBST’s 3Q19F profit, 9MFY19 earnings would account for 69% of KTBST’s full-year estimate. KTBST maintains its view that TRUE will turn around and deliver Bt1.6b core profit in FY19F following several years of losses. This would be driven by cutting costs, especially handset subsidies.
Rising competition, especially in the prepaid segment, will have hurt TRUE and the sector as badly as in 1Q19. This is because the competition is now concentrated in specific market segments (new SIM) and areas (mostly northeast provinces), compared with the nationwide pricing campaigns offered in 1Q19.
In addition, KTBST upgrades its recommendation because of the sharp correction in the share price (-18%) over the past two months due to concerns over rising competition and that TRUE might not secure the contract from BMA to be the sole operator of the underground cable following the recent intervention by the NBTC.
The view is that competition could hurt operations but the impact would be much smaller than before, and KTBST has not included the BMA contract in the earnings projection. Thus, KTBST still expects TRUE to be profitable from FY19 onwards.