ICT - Mobile

Connecting Markets East & West

© Nomura

Seeing a clear path

September 2021

ICT - Mobile

Capital Nomura Securities Public Company Limited

Investment Research and Investor Services

Nuttapon Kumnounphon (+66 2638 5777)

[email protected]

ICT - Mobile - 1Capital Nomura Securities Public Company Limited

◼ Sector summary: “Bullish” on ICT-mobile business.

There are several negative factors that pressure on industry earnings over the past years

such as COVID-19, 5G investment and license amortization

5G will be the new s-curve for the mobile service business

COVID-19 situation improving, we expect mobile service revenues in 4Q21F increase y-y

Broadband and enterprise customers have potential for high-growth market over the next

three years

A decline in operating cost is the main key to drive earnings in 2H21F

Harvest season begins, we expect earnings in 2022F to increase +10% y-y compared to

2021F flat y-y

Upside risks : Asset monetization such as Tower co. and Infra. Fund

◼ Our top picks for 4Q21F and FY2022F :

ADVANC (TP22F 220) : Leader position and dividend yield uplift .

Executive summary


SET index vs ICT index


Performance over the past two years

Source : company data

Fig 1. Norm profit’s mobile operators

Fig 3. Blended ARPU (THB/sub/month)

Fig 2. Mobile service revenues (ex. IC)

Fig 4 . %D&A trend


Performance over the past two years


Fig 5. %Network OPEX to total revenues

Fig 7. %Market cost to total revenues

Fig 6. Handset subsidy expense (THBmn)

Fig 8 . %Admin cost to total revenues


2H21F Outlook : Price competition stay high

Source : company data, NBTC, Cns estimates

Fig 9. service imbalance

Fig 11. RPM for voice and mobile data is very low.

Fig 10. Unlimited package in prepaid

Fig 12. Pre to post strategy


Key drivers for 2H21F-23F : 5G Adoption


Fig 13. More demand for data usage

Fig 15. 5G handset and coverage

Fig 14. %5G adoption in global market

Fig 16. 5G customers in Thailand (Subsmn)


Key drivers for 2H21F-23F:Economy and tourism

Source : NBTC, mhesi.go.th, ourworlddata.org

Fig 17. MOU (min/sub) and Blended ARPU (THB/sub)

Fig 19. Covid-19 daily case and %vaccinated at least 1 dose

Fig 18. IR and IDD revenues trend

Fig 20. Timeline reopening


Key drivers for 2H21-23F : Broadband business


Fig 21. Internet broadband penetration of Thailand (%)

Fig 23. Broadband ARPU (THB/sub/month)

Fig 22. New technology and new content platform

Fig 24. Fixed BB revenues trend and growth (%)


Key drivers for 2H21-23F : B2B service

Source : IDC, Frost& Sullivan

Fig 25.Worldwide ICT spending 2018-2023F (USDmn)


Key drivers for 2H21-23F : B2B service


Fig 26.Thailand cloud and DC market

Fig 28. IoT/M2M market

Fig 27. Cybersecurity market

Fig 29. ICT solution market


Other business : Digital service provider

Digital lending business

11

ADVANC DTAC TRUE


Expected service revenue growth in 2022-24F


Fig 30.Service revenue (ex. IC) in 2019-24F


Key drivers 2H21F-23F: Room for cost reduction


Fig 31. CAPEX to sales (%)

Fig 33. SG&A/sales trend

Fig 32. Network OPEX trend

Fig 34. Net profit and growth (%)


Upside risks : Towerco concept


Fig 35. Valuation upside for Towerco concept

ICT - Mobile - 15Capital Nomura Securities Public Company Limited 15

• ฐานะการเงินของกลุม่ Telenor ยงัแข็งแกรง่ Net debt/EBITDA 2 เท่า เทียบกบั DTAC ท่ี 2.4 เท่า

• ฐานรายไดแ้ละ EBITDA จากไทยยงัแข็งแกรง่ คิดเป็นสดัสว่นอนัดบั Top 3 ของเครอืราว 17-18%ของ EBITDA เครอื

• เราจงึคาดโอกาสเกิดดีลขายกิจการในไทยของกลุม่เทเลนอรช์่วง 1-2 ปีขา้งหนา้ยงัมีนอ้ยกว่า 33% แต่หากเกิดขึน้จรงิ เราประเมนิเป็น 2

กรณีหลกั คือ

• กรณีท่ี 1 หากเป็นผูป้ระกอบการรายเดิมในตลาด (โอกาสมากกว่า 50%) คาดจะสง่ผลบวกต่อภาพรวมอตุสาหกรรม การแข่งขนัลดลง

• กรณีท่ี 2 หากเป็นผูเ้ลน่รายใหม ่(โอกาสเกิดนอ้ย) คาดอาจมีผลใหเ้กิดการแขง่ขนัดา้นราคาท่ีรุนแรงขึน้ เป็นลบทัง้ ADVANC และ

TRUE

เราใหโ้อกาสนอ้ยทีก่ลุม่เทเลนอรจ์ะขาย DTAC ในชว่ง 1-2 ปีขา้งหน้า

Upside risks : M&A deal


Fig 37. Growth outlook and peer comparison

Top pick : ADVANC (TP220)

Fig 36. Valuation and ROE (%)

Source: Company data and CNS estimate

EV/EBITDA and ROE(%) PER and ROE (%)

TP22F Rating

FY20 FY21F FY22F FY20 FY21F FY22F FY20 FY21F FY22F FY21F (THB)

Mobile 40,236 40,731 44,621 -26% 1% 10% 7.5 7.3 6.9 2.8%

ADVANC 27,433 26,213 27,870 -12% -4% 6% 8.1 7.8 7.4 3% 220 BUY

DTAC 5,327 4,836 5,359 -11% -9% 11% 5.6 5.2 5.0 5% 40 TRADING BUY

INTUCH 10,486 10,149 11,087 -19% -3% 9% 242.5 310.9 509.5 3% 70 NEUTRAL

TRUE (3,009) (467) 304 -176% up up 8.8 9.0 8.4 0% 3.9 TRADING BUY

EV/EBITDA (x)Norm. Profit (THB mn) DiY (%)Growth (%)

ICT - Mobile - 17Capital Nomura Securities Public Company Limited Source: EGAT, Company data and CNS estimate

Checklist for investment in mobile operators

Criteria ADVANC DTAC TRUE INTUCH

Price competition

5G customer growth

Economic and tourism recovery

The supplement business

growth such as BB and

corporate customer

Cost reduction such as asset

monetization

Dividend and valuation


▪ Solid position in mobile business

▪ Operating cost control drives EBITDA in

2021F which is higher than revenue

▪ Potential growth in 3 main factors

▪ The number of 5G subscribers hits 1

million in 1H21 and is projected to reach 2

million by end of this year

▪ Internet business continues to gain market

share to 12% and is expected to become

the 3rd leader by the end of 2022F

▪ Revenue from corporate customer is

estimated to increase at least 10%

annually for the next three years

▪ Returning to growth stage, we expect norm

profit in 2022F-23F increase +5% per annum

compared to 2020-21F decrease -8% per

annum

▪ Strong dividend yield at least 3-4% and high

chance to get higher dividend payout ratio at

75%

Source: CNS, Bloomberg

Target Price 22F : THB 220.0 (DCF wacc 8%, g~2.5%)

Advanced Info Service (ADVANC)

Fig 38. Financial Highlights

Fig 39. EV/EBITDA

Key financials & valuations

31 Dec (THBmn) 2019A 2020 2021F 2022F 2023F

Revenue 180,294 172,890 176,138 182,385 187,948

EBITDA 76,512 88,402 92,556 95,588 97,548

Normalised profit 31,272 27,433 26,213 27,870 28,954

Net profit 31,190 27,434 26,213 27,870 28,954

EPS (THB) 10.49 9.2 8.8 9.4 9.7

EPS growth (%) 5.1 (12.05) (4.44) 6.32 3.89

PER (x) 18.1 20.59 21.55 20.27 19.51

BVPS (THB) 23.3 25.41 28.71 31.52 34.44

P/BV (x) 8.2 7.48 6.62 6.03 5.52

EV/EBITDA (x) 8.4 7.95 7.71 7.27 6.90

DPS (THB) 7.34 6.92 6.17 6.56 6.82

Dividend yield (%) 3.9 3.64 3.25 3.45 3.59

ROE (%) 49.2 37.88 32.58 31.13 29.53

Interest Bearing Debt /Equity (x) 1.4 2.07 2.01 1.63 1.30


ANALYST CERTIFICATION FOR REGULATION

I, Nuttapon Kumnounphon, a research analyst employed by Capital Nomura Securities, hereby certify that all of the views expressed in this research report accurately reflect my personal views about

any and all of the subject securities or issuers discussed herein.

In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views that I have expressed in this research report, nor is

it tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or by any other Nomura Group company or affiliate thereof.

Explanation of CNS rating system for Thailand companies under coverage published from 2 March 2009:

Stocks:

Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price) / Current Price, subject to limited management discretion. In most cases,

the Fair Value will equal the analyst’s assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc.

However, if the analyst doesn’t think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In

most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12

month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or

downside implied by the recommendation.

• A "Buy” recommendation indicates that potential upside is 15% or more.

• A “Trading Buy” recommendation indicates that potential upside is between 5% - 15%.

• A "Neutral" recommendation indicates that potential upside is less than 5% or downside is less than 5%.

• A "Reduce" recommendation indicates that potential downside is 5% or more.

Sectors:

A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation.

A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation.

A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

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