Ticker TRUE
Stock Rating SELL
Previous Rating SELL
Fair Value 09 (Fully dilute) Bt1.60
Current Price Bt1.65
Upside/(Downside) (3%)
Consensus (median) Bt1.50
Diff from Consensus 6.6%
Sector ICT
Sector Rating NEUTRAL
1Q09 EBITDA improved QoQ
We upgrade 2009 core profit form loss Bt385mn to a Bt447mn as we revise down our depreciation and SG&A expense assumption. We rate the stock “Sell” as it is trading at a premium to our fair value of Bt1.60.
1Q09 net loss, core profit Bt248mn, down 11% YoY, 54% QoQ.
TRUE reported a 1Q09 net loss of Bt131mn, which was mainly due to a forex loss of Bt379mn. Excluding this, core profit amounted to Bt248mn, down 11% YoY as the economic slowdown caused APRU to decline 19% YoY to Bt117 per subscriber per month. The profit fell 54% QoQ mainly due to a tax effect, as in 4Q08 TRUE reversed deferred income tax of Bt786mn. Excluding this, operating profit before tax improved QoQ from a loss of Bt281mn in 4Q08 to a profit of Bt631mn, and the EBITDA margin widened from 29% in 4Q08 to 33.8%. Factors behind the operating profit growth were i) earnings growth of True Online and a pickup in earnings of True Move resulting from promotions launched to boost intra-network calls and new subscribers; ii) a decline in negative net IC balance from Bt128mn in 4Q08 to Bt28mn; and iii) a 5% decline in SG&A expense as a result of cost control measures.
Upgrading 2009 earnings forecast.
We are raising our 2009 core profit forecast from a loss of Bt385mn to a profit of Bt447mn as we i) cut our depreciation expense assumption by 6% as management explained at an analyst meeting yesterday that TrueMove signed an agreement with CAT earlier this year to extend the depreciation period for network equipment that the cell phone operator will transfer to it from 2013 to 2018, which will result in TrueMove’s depreciation and amortization expense declining by Bt204mn per quarter.
Recommendation and valuation.
To reflect our earnings upgrade, we revise up our DCF fair value from Bt1.35 to Bt1.60 based on a WACC of 13%. However, as the stock is still trading at a premium to our fair value and as fundamentals are the weakest among cell phone operators with a huge debt of Bt80bn, which continues to be a key earnings drag, we maintain our “Sell” rating. A recent capital increase will result in a temporary financial liquidity boost, which TRUE will use to make a Bt13bn debt repayment next year. But its plan to invest in developing a 3G network is a warning that another cash call may occur in the future.
By Ayudhya Securities Public Company Limited on May 20, 2009
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