ADVANC: The Toughest Operator to Stand Strong against the Arrival of 5G

Kasikorn Securities (KS) has given a “BUY” recommendation on Advanced Info Service Public Company Limited (ADVANC) with a target price at ฿243.16/share.

 

KS states that ADVANC is in a business industry that can still continue to grow while having fewer competitors due to its business size. KS gives 2020 DCF based target price of Bt243.16 using a WACC of 9.2%. Still, KS has yet to include the valuation from 5G into the target price.

KS expects ADVANC’s share prices to increase due to 1) a decent 4Q19 performance; 2) no new strong competitors in the bidding for 5G spectrum.

ADVANC gains 24.6% this year, outperforming SET Index that edges up only 0.5%. The increase of ADVANC’s share prices is due to the easing of competitiveness in mobile business while ADVANC has high cash flow from the extended installment in 4G investment.

 

The Effect of Unlimited Data Package

The share price of ADVANC fell 9.2% from the highest price this year at ฿238.00/share in which KS believes the reason is due to the competitiveness in price has returned since September after all three operators renewed their “unlimited data” package which includes promotions like unlimited data and calling to all mobile networks for 200 baht per month.

The fee in exchange for the usage of unlimited data and calling cause investors to worry about the service revenue would decline further in the fourth quarter. Which is the reason why the development of this package, the estimation of earnings from securities in January, and the announcement of ADVANC’s financial statement on 6 February 2020 will be the main factors to decide the direction of ADVANC’s share price in the short-term.

 

Investors’ Concern of 5G Bidding

The bidding for 2600 MHz (5G) spectrum has been pressuring share prices of all three operators. The competition would not be as fierce as the 4G bidding and there are low chances of new strong competitors entering the bidding, but the risks still remain, especially at the beginning of 5G era. Operators are expected to generate low earnings from 5G at the beginning, and could be lower than the costs and expenses. Out of the three operators, KS believes ADVANC to have the least effect on the financials.

 

Risks

KS believes investors would make a decision for a selloff on ADVANC if 1) services revenue declines QoQ 2) strong competitors decide to join the 5G bidding and 3) the bidding price for 2600 MHz spectrum is higher than expected.