Thailand Initiating Coverage
7 November 2019 Communications | Telecommunications True Corp (TRUE TB) Sell Cash-Driven Growth Winding Down; Initiate SELL Target Price (Return) THB4.45 (-13%) Price: THB(+18)5.10 Market Cap: USD 5,653m Avg Daily Turnover (THB/USD) 946m/31.5m
Initiate coverage with SELL, DCF-based THB4.45 TP, 13% downside and Analysts 1.5% FY20F yield. Despite having the strongest market share growth among integrated telcos in the past few years, TRUE’s core earnings are still sluggish, pressured by massive operating costs and capex during its expansion. While Kasamapon Hamnilrat its balance sheet is starting to tighten, with lower funding room from asset +66 2088 9739 divestments, we believe its key priority in the short term is to balance [email protected] maintaining market share growth, while returning to positive operating FCF. Challenging outlook. Despite improving monetisation from the mobile industry, we believe TRUE’s strategic refocus on improving profitability and Pakorn Khaoeian turning cash flow positive may not be easy, given its high operating cost structure, and a vendor finance cycle that may need more time to scale down. With the industry switching to cheaper subs acquisition methods with less
aggressive marketing campaigns, we are concerned on the trade-off, as the Share Performance (%) growth momentum may decelerate. While the fixed broadband (FBB) subs base continues to grow despite intense competition, we think the company will YTD 1m 3m 6m 12m slowly cede its high market share in this segment to newcomers. Absolute (1.9) (1.9) (19.0) 1.0 (14.3) Strategy. Since 2017, it has divested over THB68bn of network assets to Relative (5.8) (3.0) (16.2) 4.3 (11.6) Digital Infrastructure Fund (DIF) to support capital flow. However, the recent 52-wk Price low/high (THB) 4.50 – 6.80 disposal to DIF has left it with limited network assets on hand for further divestment. While the focus on cost control should prevent competition from reaching previous irrational levels, we expect the company to focus on fixed mobile convergence (FMC) as its key strategy to support pre-to-post migration, lift ARPU and grow its FBB subs base. We conservatively expect FCF to turn positive only after cash capex declines in 2021. Cost control the real earnings driver in FY19. Despite positive ARPU recovery prospects in the mobile unit, FBB and pay-TV revenues are expected to continue being pressured by intense competition. While we expect group core service revenue to be flat (0.6% YoY), core earnings are expected to grow by 163% from a low base to THB 4.8bn, mostly supported by significantly lower device subsidies and stringent cost control. Although we anticipate extra gains from selling assets to DIF (amounting c.THB 4.5bn), we do not expect special
dividends to be paid out from this transaction. Source: Bloomberg; Note: Data as at 06 Nov 2019 Incoming headwinds. In addition to stiff competition from newcomers in FBB continuing into 2020, we think TRUE’s mobile business will be challenged by a Table of Contents Financial Exhibits 2 deceleration in pre-paid to post-paid migration, and growing ARPU through Investment Thesis 3 higher price plan replacements amidst the economic slowdown. We also see Valuation 3 more downside in its pay-TV business, even though it acquired English Premier Investment Merits 5 Brief Overview 14 League (EPL) broadcast rights (2019-2021), given the popularity of over-the- 3Q19 Results Preview 21 top (OTT) streaming services that charge much lower fees. Initiate with SELL. Our DCF-derived TP of THB4.45 (WACC 8.97%, TG 1%) implies EV/EBITDA of 8.6x, or -0.25SD from its 5-yr average. Upside risks are an ongoing litigation settlement and better-than-expected industry competition.
Forecasts and Valuation Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F Total turnover (THBbn) 141.29 162.77 141.58 140.29 142.17 Reported net profit (THBbn) 0.5 7.0 9.3 5.0 5.3 Recurring net profit (THBbn) (4.5) 1.8 4.8 5.0 5.3 Recurring net profit growth (%) n.a n.a 163.3 5.1 4.6 Recurring EPS (THB) (0.1) 0.1 0.1 0.2 0.2 DPS (THB) 0.0 0.1 0.1 0.1 0.1 Recurring P/E (x) (37.4) 93.2 35.4 33.7 32.2 P/B (x) 1.3 1.3 1.2 1.2 1.2 P/CF (x) 34.1 4.5 5.8 3.3 3.6 Dividend Yield (%) 0.6 1.7 2.7 1.5 1.5 EV/EBITDA (x) 7.0 5.4 8.3 8.6 8.4 Return on average equity (%) (3.6) 1.4 3.4 3.6 3.7 Net debt to equity (%) 0.9 1.0 1.1 1.3 1.3
Source: Company data, RHB; Note: Data as at 6 Nov 2019
See important disclosures at the end of this report 1
True Corp Thailand Initiating Coverage
7 November 2019 Communications | Telecommunications
Financial Exhibits
Financial model updated on: 2019-11-06. Asia Thailand Financial summary Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F Telecommunications Recurring EPS (THB) -0.1 0.1 0.1 0.2 0.2 True Corporation EPS (THB) 0.0 0.2 0.3 0.2 0.2
DPS (THB) 0.0 0.1 0.1 0.1 0.1 Major shareholders (%) BVPS (THB) 3.8 4.0 4.2 4.2 4.3 Charoen Pokphand Group 50.6 China Mobile international 18.0 UBS 9.0 Valuation metrics Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F Recurring P/E (x) -37.4 93.2 35.4 33.7 32.2 Valuation basis P/E (x) 312.3 24.5 18.3 33.7 32.2 DCF P/B (x) 1.3 1.3 1.2 1.2 1.2 FCF yield (%) (17.1) (8.5) (7.1) (3.7) 4.9 Key drivers Dividend yield (%) 0.6 1.7 2.7 1.5 1.5 i. Monetisation improvement from mobile business; EV/EBITDA (x) 7.0 5.4 8.3 8.6 8.4 ii. Strong convergence services bolster market
share acquisition with cheaper cost. Income statement (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F
Operating revenue 141,289 162,773 141,582 140,293 142,172 Key risks EBITDA 39,912 56,001 43,898 40,525 41,922 i. Cash-driven growth starting to be capped; Depreciation and amortisation (33,473) (33,592) (26,504) (27,703) (28,735) ii. Tightening balance sheet with limited sources of EBIT 6,440 22,409 17,394 12,822 13,187 funding from asset divestment; Interest expenses (7,896) (7,226) (9,343) (9,933) (10,058) iii. High operating cost structure needs more time to Profit before tax 1,855 13,045 11,347 6,156 6,439 scale down; iv. Intense competition from FBB business. Taxation (1,316) (6,010) (2,043) (1,108) (1,159) Recurring net profit (4,547) 1,825 4,805 5,048 5,280 Company Profile True Corp is a fully-integrated telco provider offering Cash flow (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F mobile, broadband internet and television content, as Cash flow from operations 2,050 6,958 9,305 5,048 5,280 well as other digital and telco services. The group’s key competitive strengths are quality-driven convergence Change in working capital (6,335) 18,487 13,507 15,548 16,161 propositions, a broad selection of communication CAPEX (34,083) (52,362) (41,500) (57,614) (39,164) services utilising advanced technologies, innovative Cash flow from investing activities (42,050) (61,169) (41,500) (57,614) (39,164) solutions, and a comprehensive range of digital media and content. Dividend paid 0 (1,034) (2,326) (3,588) (2,582) Cash flow from financing activities 5,114 25,662 14,394 (5,752) (13,826) Cash at beginning of period 50,184 18,226 20,672 23,040 10,912
Net change in cash (31,942) 2,421 2,368 (12,128) (5,469) Ending balance cash 18,226 20,672 23,040 10,912 5,444
Balance sheet (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F Cash and cash equivalents 18,226 20,672 23,040 10,912 5,444 Trade account receivable 47,703 64,476 66,544 64,535 63,978 Tangible fixed assets 176,190 205,812 232,350 252,072 268,299 Intangible assets 140,780 132,482 120,940 131,129 125,331 Total other assets 76,283 72,127 68,772 68,293 68,436 Total assets 459,182 495,569 511,646 526,941 531,488 Trade account payable 115,494 111,754 102,569 105,754 107,268 Short-term debt 77,529 87,269 94,875 97,652 99,534 Total long-term debt 49,924 68,054 86,512 91,504 88,437 Other liabilities 88,051 94,608 86,828 89,709 91,230 Total liabilities 330,998 361,685 370,784 384,619 386,468 Total equity 128,184 133,883 140,862 142,322 145,020 Net debt (109,227) (134,651) (158,347) (178,244) (182,527) Total liabilities & equity 459,182 495,569 511,646 526,941 531,488
Key metrics Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F Revenue growth (%) 13.3 15.2 -13.0 -0.9 1.3 Recurring EPS growth (%) -9.7 -140.1 163.3 5.1 4.6 EBITDA margin (%) 28.2 34.4 31.0 28.9 29.5 Net profit margin (%) 0.4 4.3 6.6 3.6 3.7 Dividend payout ratio (%) n.a 14.9 50.0 50.0 50.0 ROE (%) -3.6 1.4 3.4 3.6 3.7 ROA (%) -1.0 0.4 0.9 1.0 1.0
Source: Company data, RHB
See important disclosures at the end of this report 2
True Corp Thailand Initiating Coverage
7 November 2019 Communications | Telecommunications
Investment Thesis We initiate coverage with SELL and a DCF-derived TP of THB4.45, reflecting 11% downside. The TP implies FY19F EV/EBITDA of 8.3x, which is slightly below its 5-year historical mean. We expect the company to continue tightening cost control, which should bolster FY19F earnings. We anticipate core earnings to grow from a low base by 163% YoY to THB4.8bn in FY2019, mainly on lower device subsidies (-19.1% YoY) and better cost control (SG&A: -12.5% YoY). However, we also estimate core earnings growth to decelerate to 4.8% on average in FY20-22, driven mostly by FBB expansion and ongoing cost control. As its balance sheet starts to tighten, we believe its key priority in the short term is to balance maintaining market share growth while returning to positive FCF. This is mainly as room for asset disposals to the infrastructure fund is starting to be limited. We think the company will need more time to pare down opex or change its market pricing position to increase revenue, and that it will be challenged to scale down the operating cost structure it has been using in the past three years to acquire market share. The FBB business will remain pressured by prolonged intense competition, and we believe TRUE’s attempt to shift focus to high-quality customers in the fibre business will be challenging due to Advance Info Services’ (AIS) (ADVANC, BUY, TP: THB250.00) move to penetrate this segment, with a relatively higher customer base. We are also negative on its pay-TV business in the long term, due to changing customer trends and the increasing popularity of OTT streaming services. TRUE will benefit from the payment extension for the 900MHz spectrum, and the grace period for the incoming 5G spectrum allocation (2020-22) will give them some room to build up its liquidity before the first payment is due in 2022.
Valuation
Figure 1: TRUE’s DCF valuation FYE (THBm) 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F EBIT 12,822 13,187 13,137 13,211 13,339 13,761 13,565 13,605 13,649 13,696 EBIT*(1-Tax) 10,514 10,814 10,772 10,833 10,938 11,284 11,123 11,156 11,192 11,231 Depreciation & Amortisation 27,703 28,735 28,921 28,836 28,547 28,105 28,279 28,213 28,139 28,058 Change in working capital 18,487 13,507 15,548 16,161 16,056 16,101 16,440 16,783 17,132 17,486 CFO 56,704 53,055 55,242 55,831 55,541 55,490 55,842 56,152 56,463 56,775 Capex -57,614 -39,164 -36,164 -33,164 -33,164 -33,164 -25,000 -25,000 -25,000 -25,000 FCFF -910 13,891 19,078 22,667 22,377 22,326 30,842 31,152 31,463 31,775 NPV -910 12,747 16,065 17,515 15,867 14,528 18,416 17,070 15,820 14,661
Parameter
WACC 8.97%
LTG 1.0%
Terminal value (THBm)
PV of FCFF 127,118
PV of Terminal value 200,355
NPV to firm 327,473
(-) Net debt -178,244
(-) Minority interest -593
NPV to Equity 148,637
No. of outstanding shares (m) 33,368
Per share (THB) 4.45 Note: Capex assumption excludes upcoming 5G spectrum allocation Source: Company data, RHB
Figure 2: TRUE’s WACC assumptions Cost of Equity Cost of Debt
Expected market return 14.5% Pre-tax Cost of debt 4.3%
Risk free 2% 1 - Effective tax rate 80%
Beta 1.59 Weight 70%
Weight 30%
WACC (estimated) 8.97%
Source: RHB
See important disclosures at the end of this report 3
True Corp Thailand Initiating Coverage
7 November 2019 Communications | Telecommunications
Figure 3: Regional peer comparison MY Telcos Axiata Group AXIATA MK MYR Sell 4.26 4.00 9,272.8 29.5 23.3 5.6 5.1 2.2 2.1 2.9 3.6 7.4 9.3 Digi.com DIGI MK MYR Buy 4.67 5.50 8,657.8 23.1 23.4 12.7 12.3 63.0 59.8 4.2 4.2 272.6 255.7 Maxis MAXIS MK MYR Sell 5.44 4.65 10,144.4 27.3 27.6 13.5 13.1 5.7 5.4 3.7 2.8 21.2 20.0 TM T MK MYR Neutral 3.37 4.28 3,016.9 20.6 20.3 5.2 5.1 1.9 1.8 2.3 2.3 7.6 8.0 Time dotCom TDC MK MYR Buy 9.00 10.90 1,256.6 14.6 13.1 10.1 9.1 1.8 1.6 2.7 3.0 11.2 11.8 OCK Group OCK MK MYR Buy 0.62 0.75 536.0 16.6 15.3 8.8 9.4 1.2 1.4 0.0 0.0 5.5 6.0 Simple avg.- MY telcos (excl OCK) 23.0 21.5 9.4 8.9 14.9 14.1 3.2 3.2 64.0 61.0 Weighted avg.- MY telcos 25.7 24.0 10.1 9.7 2.7 2.5 3.4 3.4 9.9 10.1
Singapore Singtel ST SP SGD Neutral 3.15 3.22 37,415.8 16.1 15.7 11.5 11.2 1.6 1.6 5.8 5.8 10.0 10.2 StarHub STH SP SGD Neutral 1.30 1.90 1,632.3 15.6 16.7 6.7 6.1 8.0 7.3 4.7 4.7 51.8 43.9 39,048.1 Simple avg.- SG telcos 15.9 16.2 9.1 8.7 4.8 4.5 5.3 5.3 30.9 27.1 Weighted avg.- SG telcos 16.1 15.7 11.3 11.0 1.9 1.8 5.8 5.8 11.7 11.6
Indonesia Telekomunikasi Indonesia TLKM IJ IDR - 4,120.0 4,700 28,417.5 19.0 16.9 7.0 6.3 3.8 3.6 0.0 0.0 20.0 21.1 XL Axiata EXCL IJ IDR - 3,440.0 3,850 2,620.4 66.1 32.1 6.1 5.4 1.9 1.8 0.0 0.0 3.0 5.7 Indosat ISAT IJ IDR - 2,710.0 4,000 1,040.5 - - 5.0 4.4 1.5 1.7 0.0 0.0 -18.2 -19.9 Simple avg.- Indo telcos 42.6 24.5 6.0 5.4 2.4 2.4 0.0 0.0 1.6 2.3 Weighted avg.- Indo telcos 22.2 17.6 6.9 6.2 3.6 3.4 0.0 0.0 17.4 18.5
Indonesia Towercos Tower Bersama TBIG IJ IDR - 6,400.0 - 2,049.1 30.1 26.0 11.5 10.6 7.7 6.9 2.4 2.4 25.8 27.0 Sarana Menara TOWR IJ IDR - 635.0 - 2,288.9 13.9 12.9 8.3 7.8 3.6 3.2 3.8 4.2 26.4 25.4 Simple avg.- Indo towercos 22.0 19.5 9.9 9.2 5.6 5.0 3.1 3.3 26.1 26.2 Weighted avg.- Indo towercos 21.6 19.1 9.8 9.1 5.5 4.9 3.1 3.3 26.1 26.2
Thailand Advanced Info Services ADVANC TB THB Buy 228.0 250.00 22,381.3 20.6 19.1 9.8 9.2 10.0 8.5 3.6 3.8 48.3 44.5 DTAC DTAC TB THB Sell 56.5 51.00 4,417.0 19.5 19.9 6.6 6.2 5.5 4.8 4.7 3.5 28.1 24.2 Jasmine International JAS TB THB - 6.4 - 1,711.9 21.9 32.6 8.7 9.7 3.3 3.0 0.1 0.2 14.3 53.6 True Corp TRUE TB THB Sell 5.2 4.45 5,673.7 38.2 36.4 8.3 8.6 1.3 1.3 2.7 1.5 3.4 3.6 Simple avg.- TH telcos (excl. Jasmine) 26.1 25.1 8.2 8.0 5.6 4.9 3.7 2.9 26.6 24.1 Weighted avg.- TH telcos (excl. Jasmine) 23.5 17.6 9.6 9.2 8.0 6.9 3.6 3.4 5.2 6.7
China China Mobile 941 HK RMB - 65.3 - 170,318.0 10.9 10.9 3.0 3.0 1.1 1.0 0.0 0.0 10.0 9.7 China Unicom 762 HK RMB - 8.4 - 32,765.7 18.0 13.3 2.5 2.4 0.7 0.7 0.0 0.0 4.0 5.3 Simple avg.- CH telcos 14.5 12.1 2.8 2.7 0.9 0.9 0.0 0.0 7.0 7.5 Weighted avg.- CH telcos 12.1 11.3 2.9 2.9 1.0 1.0 0.0 0.0 9.0 9.0
Weighted avg- ASEAN 4 telcos #VALUE! 20.3 18.6 9.2 8.7 7.9 7.3 3.2 3.2 36.4 35.3 Weighted avg- ASEAN 4+ China telcos #VALUE! 15.9 14.7 5.5 5.3 3.8 3.5 1.4 1.3 20.0 19.3 Simply avg. - ASEAN 4 telcos 25.2 21.9 8.6 8.2 8.5 8.0 3.2 3.0 39.0 36.7 Simple avg. - ASEAN 4 + China telcos 23.8 20.6 7.8 7.4 7.5 7.0 2.8 2.6 34.8 32.8 Note: Data as at 06 Nov 2019 Source: Company data, RHB
See important disclosures at the end of this report 4
True Corp Thailand Initiating Coverage
7 November 2019 Communications | Telecommunications
Investment Merits We think TRUE still has a good long-term outlook given its competitive position in network quality, convergence service, as well as its strong synergy with the CP Group. However, we think it will be challenged by the following: i. Cash-driven growth is starting to winding down; ii. Change in cost structure will need more time to rebalance; iii. Trade-off between profitability and growth momentum; iv. Slowdown in FBB growth; v. Downturn in the pay-TV business.
Cash-driven growth starting to winding down Highest growth among peers. Although TRUE has been outpaced by industry peers in both its mobile and fixed broadband businesses in gaining new market share over the past several years, its mobile market share has surpassed Total Access Communication (DTAC) (DTAC TB, SELL, TP: THB54.00), and become the second largest of the industry since 4Q16. This represents a 3-year CAGR from of 11.5% for 2017 to 2019, contributed mostly by prepaid subs that increased from 16.2m to 21.9m (3-year CAGR of 10.7%) and postpaid subs that increased from 5.3m to 7.9m (3-year CAGR of 14%). Figure 4: Total mobile subscribers (m)
ADVANC DTAC TRUE 50.0
AIS 3-yrs CAGR 40.0 2%
29.8 TRUE 30.0 3-yrs CAGR 11.5% 21.5 DTAC 20.0 3-yrs CAGR -6%
10.0
0.0 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Source: Company data, RHB
Despite the impressive growth in market share, core earnings remained negative in the past few years – mainly due to massive spending on marketing and promotions.
See important disclosures at the end of this report 5
True Corp Thailand Initiating Coverage
7 November 2019 Communications | Telecommunications
Figure 5: TRUE’s quarterly earnings (THBm)
12,000 PATAMI Extraordinary Items 10,000
8,000
6,000
4,000 1,509 2,000 1,060 95 0 (681) (695) -2,000 (1,145) (1,249) (2,195) -4,000
-6,000
-8,000 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19
Source: Company data, RHB
Sales and marketing expenses. TRUE’s sales and marketing expenses have been the highest vs peers (Figure 6: FY18 c.THB21bn/pa vs AIS’ THB10bn/pa and DTAC’s THB5bn/pa) as they geared towards acquisitions. The spending level was also relatively high vis-à-vis sales generation – its sales and marketing expenses-to-sales ratio has been more than double that of its peers for the past three years (Figure 7: FY2019F True 13% vs AIS and DTAC at c.5%). This has partly contributed to a drain on liquidity and loss-making operations.
Figure 6: Sales & marketing expenses (THBbn) Figure 7: Sales & marketing expenses to sales ratio
TRUE AIS DTAC 25.0 TRUE AIS DTAC 16.0%
21.0 20.6 14.0% 13% 19.4 20.0 17.2 12.0%
10.0% 15.0 13.2 11.4 8.0% 10.1 6% 10.0 8.5 6.0% 5% 6.2 4.5 4.0% 5.0 3.9 2.0%
0.0 0.0% 2009 2011 2013 2015 2017 2019F 2009 2011 2013 2015 2017 2019F
Source: Company data, RHB Source: Company data, RHB
Capex investment to improve network quality has also resulted in high depreciation expenses, which impacted earnings during its network expansion. The company maintains its capex guidance at almost double that of its peers in 2019F, and we expect cash capex from the vending finance cycle to remain elevated, until 2022.
See important disclosures at the end of this report 6
True Corp Thailand Initiating Coverage
7 November 2019 Communications | Telecommunications
Figure 8: Historical capex investment (THBbn) Figure 9: Cumulative capex investment (THBbn) (2009-2018)
50 TRUE AIS DTAC 250.0 232.2 228.2 45 40 40 200.0 35 30 150.0 25 25 20 100.0 83.0 15 15 10 50.0 5 - - AIS DTAC TRUE 2009 2011 2013 2015 2017 2019F
Source: Company data, RHB Source: Company data, RHB
Mobile service revenue to increase. While management has guided that it will shift focus to profitability rather than growing topline, we think mobile service revenue will grow by 4.4% this year, supported by better monetisation in both the pre-paid and post-paid segments, after unlimited data packages from last year (12-month validity) are gradually phased out. This should partially support the continued recovery in mobile ARPU in 2H19. We estimate mobile service revenue growth at an average of 3% for 2020-2022, as a result of slower market share expansion. FBB subs also grew significantly by 40% (3-year CAGR of 12.8%), outperforming the industry average and peers by the number of net added subs during the same period. Apart from spending on marketing and promotions, we believe that this was mainly due to its FMC initiative, which has successfully gained subs through cheaper bundling packages. While we expect FBB subs to grow at a slower rate (average 6.25% in 2019-2020) due to AIS’ increased segment penetration, we believe this segment still has more upside from the relatively lower penetration rate in rural areas compared to the mobile business. Figure 10: Total fixed broadband subscribers (net adds in last three years)
JAS TRUE AIS 4.0 3.5 3.6 3.4 3.5 TRUE 3.5 3.3 3.4 net add subs 3.2 3.0 1.14m 2.9 3.0 3.0 2.8 JAS 2.7 2.6 net add subs 1m 2.5
2.0
1.5
AIS 1.0 net-add subs 0.78m 0.5
0.0 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Source: Company data, RHB
Pay-TV business. Although growth in the pay-TV business appears to be underperforming relative to TRUE’s other businesses, its subs still grew at an impressive 3-year CAGR of 5.9%, or 19% over the last three years. However, we are concerned on the declining premium package subs (-7.7% each year) which resulted in the business’s ARPU deteriorating (-9.5% each year) during this time. The increase in total pay-TV subs came mainly from standard package subs that that grew significantly, driven by the FMC initiative.
See important disclosures at the end of this report 7
True Corp Thailand Initiating Coverage
7 November 2019 Communications | Telecommunications
Although we have a negative view on the pay-TV industry in the long term – given its high content cost and the popularity of competing streaming services – the recent acquisition of EPL broadcast rights for 2019-2021 will bring positive momentum in the short term. We forecast conservative growth in total pay-TV subs of only 1% in 2019, driven by its top-up packages. We think the declining trend of pay-TV ARPU will be buffered by top-up packages in the sports segment. Figure 11: Pay-TV subscribers by package (m)
4.5
4.0 Free To Air package 3.5 subs 35% 3.0 Free View package 2.5 8% subs 6% 2.0 Premium package 1.5 subs (million) 51% 1.0 Standard package subs 0.5 (million)
0.0 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Source: Company data, RHB
Although massive spending on network investment and marketing in the past few years has turned TRUE into one of the leading competitive players in terms of network quality, market share position and services, we think the strategic shift towards increasing profitability or cash flow is mainly due to the following factors detailed below. Burning through cash will not last forever. The company’s cash flow has been a key concern for investors in the past few years as it spent significant amounts on spectrum licences, capex and marketing expenses in a bid to expand market share. The combination of asset divestments and debt-funding during the expansion has caused its balance sheet to begin tightening.
Figure 12: TRUE’s cash flow structure (THBm) Figure 13: TRUE’s net debt-to-equity ratios
60,000 CFO CFI CFF 1.8 Net Debt to Equity (x) 50,000 1.6 2nd Asset 40,000 divestment 1.4 1.2 1.2 30,000 1.2 1.1 Debt funding st 1.0 20,000 1 Asset 1.0 divestment 0.9 10,000 0.8
0 0.6 0.5
-10,000 0.4
-20,000 0.2
-30,000 0.0 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 2015 2016 2017 2018 2019F 2020F
Source: Company data, RHB Source: Company data, RHB
Limited room for cash injection via asset sales. While the latest disposal of additional telco infrastructure assets (THB15.7bn) to DIF is expected to take total asset divestments to THB83bn since its initiation in 2017, we think the company may have limited room for further divestment. According to management, TRUE divested most of its telco towers to the fund (including towers built in the past 12 months) in the recent transaction.
See important disclosures at the end of this report 8
True Corp Thailand Initiating Coverage
7 November 2019 Communications | Telecommunications
Figure 14: Latest asset divestment to DIF in 3Q19
Source: Company data, DIF
From DIF’s perspective as an asset management company, investment in fibre optic cables alone is less preferable given its fixed rental rate. This would make further divestments (if any) more costly and difficult. We remain cautious on the company’s negative free cash flow in the medium term, as we are concerned that the limited room for further asset divestments could impact liquidity in the future. Better payment schedule, but might not be adequate. While the payment extension of the country’s first 5G spectrum licence (700MHz) allocation in June 2019 is expected to create more liquidity for all operators in the industry, we think the bulk payment of THB24bn that the company needs to pay in 2020 will keep cash flow negative next year. Figure 15: Operating cost structure Previous - Payment schedule of 900MHz licenses 2016 2017 2018 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F Total AIS 8,603 4,301 4,301 63,744 80,949 TRUE 8,603 4,301 4,301 64,433 81,639 DTAC 4,301 2,151 2,151 32,126 40,729
New payment schedule after Military government invoked Section 44 on relaxation requested 2016 2017 2018 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F Total AIS 8,603 4,301 4,301 23,269 8,095 8,095 8,095 8,095 8,095 80,949 TRUE 8,603 4,301 4,301 23,614 8,164 8,164 8,164 8,164 8,164 81,639 DTAC 4,301 7,917 4,073 4,073 4,073 4,073 4,073 4,073 4,073 40,729 Source: Company data, RHB
With the country’s spectrum roadmap scheduled to be finalised this year, we anticipate the cost of the next 5G spectrum allocation at c.THB50-60bn (higher than the previous allocation of THB17.5bn). This is as the spectrum capacity expected to be rolled out for the next auction could be much higher (> c.1000 MHz) due to the multi-band concept (700Mhz, 1800MHz, 2600Mhz and 26GHz mmwave spectrum).
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While there are some uncertainties ahead on the future assignment – as the National Broadcasting & Telecommunications Commission (NBTC) wants to implement the new allocation method by sub-dividing spectrum licences into clusters/areas, which could result in more complexity in terms of economic valuation – we expect the process of spectrum re- farming to be prolonged, due to the regulatory risks. While we have not included the new 5G spectrum payment into our forecasts, we think TRUE would not be able to be cash flow- positive until 2021.
Good long-term outlook but not yet the time Change in cost structure will need more time to rebalance. While we have a positive view on the change of the company’s strategic plan to focus more on profitability and cost control, we think that this change might take time to achieve. We think that its operating cost structure – in use during its acquisition mode for the past several years – might need more time to rebalance. Meanwhile, certain fixed costs, such as network-related expenses, depreciation & amortisation, and staff costs account for around 60% of total costs, controllable expenses such as sales & marketing (that can be immediately managed) make up only 5% of its cost structure. While we believe the company would focus on costs related to revenue, it would need more time to balance between maintaining revenue growth momentum and cost control. Figure 16: Operating cost structure Operating expense breakdown (THBm) 2017 2018 Operating expense breakdown (% of Total) 2017 2018 Direct costs related to revenues 41,470.3 41,142.6 Direct costs related to revenues 37% 36% Netw ork operating and maintenance 12,695.8 14,251.4 Netw ork operating and maintenance 11% 12% Staff costs 13,417.1 13,806.1 Staff costs 12% 12% Selling, advertising and publicity 5,287.9 6,136.2 Selling, advertising and publicity 5% 5% Doubtful accounts 1,830.6 2,142.9 Doubtful accounts 2% 2% Depreciation Depreciation - ow ned assets 11,933.2 10,267.4 - ow ned assets 11% 9% - leased assets under finance leases 1,533.0 2,898.2 - leased assets under finance leases 1% 3% Amortisation Amortisation - Intangible assets (Note 23) 14,257.4 13,981.6 - Intangible assets (Note 23) 13% 12% - Others 8,382.4 9,413.3 - Others 8% 8% Total 110,807.6 114,039.7 Total 100% 100% Source: Company data, RHB
Growing revenue also needs time. As industry competition has started to shift from mobile subsidies to pricing strategies, we are concerned that the company might not be able to change its pricing position easily. This is mainly due to its discount pricing strategy (Figures 16 and 17) for the past few years in order to gain market share. We think TRUE would also need more time to change its package position in the market, while balancing the possible negative impact on its existing client or market share growth momentum. While we have yet to see TRUE increase core package prices across key businesses, we think it would gradually start by using top-up packages to uplift overall ARPU in the short term.
Figure 17: Prepaid ARPU (THB/month) Figure 18: Postpaid ARPU (THB/month) 650.0 250.0 AIS DTAC TRUE Industry AIS DTAC TRUE Industry
600.0 Premium 200.0 Pricing Premium Pricing 550.0
150.0 500.0
450.0 100.0 Discount Discount Pricing Pricing 400.0
50.0 350.0 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Source: Company data, RHB Source: Company data, RHB
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FBB growth would slow down. While its fixed broadband business remains under pressure from the rise of new players like AIS heating up industry competition in the premium segment, we are concerned that AIS’ plan to leverage its large mobile subs base through FMC could impact TRUE’s subs acquisition in the near term. While AIS’ FBB subs conversion rate through FMC has risen, the proportion of TRUE’s FBB subs as a percentage of mobile subs is already high, meaning it has less room for organic conversion through FMC compared to AIS.
Figure 19: Fixed broadband market share (%) Figure 20: Fixed broadband ARPU (THB/month)
60% TRUE JAS AIS 800 TRUE JAS AIS
50% 700 600 40% 500
30% 400
20% 300 200 10% 100
0% 0 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19
Source: Company data, RHB Source: Company data, RHB
Although we still expect its FBB subs to grow by 7.5% in 2019 – driven by the FMC bundling package – we conservatively expect its FBB ARPU to be flat, given the intense competition that is likely to be prolonged in 2H19. Figure 21: FBB subs as a percentage of mobile subs
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0% 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Note: The grey bars denote AIS’ FBB subs as a percentage of mobile subs. The blue bars denote True’s FBB subs as a percentage of mobile subs. Source: Company data, RHB
Questionable decision on the pay-TV business. While TRUE did not disclose the content cost of acquiring the English Premier League (EPL) broadcast rights for 2019-2021, we anticipate it to be around THB2-3bn per year (vs ~THB3.3bn per year in 2013-2015), with semi-annual payments on a 3-year payment term. We are concerned about the decline in its premium package subs, and also mindful about business profitability amidst the popularity of OTT streaming services and illegal live sports broadcasts online.
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Figure 22: Pay-TV and streaming packages in Thailand
Source: Company data, RHB
Although the company stopped disclosing each business segment’s P&Ls since 2016, we doubt its pay-TV segment’s net loss of THB1.3bn in 2016 (when OTT streaming had significantly less penetration than now) points to a worsening trend. While its content spending will significantly increase this year (from the EPL content), we are apprehensive that TRUE will lose more market share if it maintains its current package prices – given the relatively high pricing vs AIS.
Figure 23: Pay-TV premium package subs (m) Figure 24: Pay-TV standard package subs (m) 0.34 3.0 Premium package subs (million) Standard package subs (million)
0.32 2.5 HBO contract 0.30 terminated HBO contract 0.30 2.04 2.0 terminated 0.28 1.5 0.26 1.0 0.81 0.24 0.23 0.22 0.5
0.20 0.0 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Source: Company data, RHB Source: Company data, RHB
Apart from the technology disruption, we deem this as partly due to an internal strategic decision. We think TRUE’s pay-TV business actually started to lose momentum since 4Q16, after terminating the contract with Home Box Office (HBO) – which had programmes that are attractive to subs. Together with a significant drop in premium subscriptions, standard subscriptions also started to lose momentum. Although we still expect total pay-TV subs to grow by a slight 1% – driven by the standard package through bundling – we remain conservative, and forecast pay-TV ARPU to slightly decrease 1%, despite the support of top-up packages from the sport segment.
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More vertical integration ahead. While we expect the company to set up a new business unit (True Digital Group) – by pulling together its other digital businesses ie True Money, True Data Analytics, IoT and TrueID – as its fourth core business, its ongoing discussions about its underground cable project still have a long way to go. While we note that the underground cable project between TRUE and Krungthep Thanakom (KT), a non-listed subsidiary of the Bangkok Metropolitan Administration (BMA) is still in the negotiation process, management guided last month that it will need much more time for it to be finalised. This was mainly due to the differences in terms proposed by each party for the deal structure, such as for capex and details of investments. As the company has shown no interest in hastening completion of the deal, we do not expect the lease agreement to come about within this year. Data usage growth to decelerate, with better monetisation. As we anticipate competition in the mobile telco industry to continue to ease after operators move towards pricing strategies on bundling packages (vs handset subsidies), we expect industry ARPU to continue to recover in 2H19, mainly from higher-price plan replacements. We anticipate the shift of unlimited packages to data usage-based ones to result in a slowdown of its network capacity expansion.
Figure 25: Average data usage per subscriber Figure 26: Revenue per MB (THB) 12,000 Average data usage (MB)/subs/mth 25% Average data usage (QoQ%) THB/MB TRUE AIS DTAC 0.09 10,000 20% 0.08 0.07 8,000 15% 0.06 0.05 6,000 0.04 10% 4,000 6% 0.03 0.02 5% 2,000 0.01 0.00 0 0% 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Source: Company data, RHB Source: Company data, RHB
Considering that average data usage growth per subscriber has decelerated to 6% QoQ in 2Q19 (vs 14% in FY18), we think this could allow telcos to lower capex for network capacity expansion. While the overall number of new base stations are set to decrease after the country moves out from the coverage expansion to the capacity enhancement stage, we think the bulk of industry capex will shift to spectrum licences, or to the new generation of network equipment. As such, we expect network expense growth to slow down, and overall industry profitability should then improve in the mid-term. The arrival of a 4th player. While the Government has maintained its plan to merge TOT and CAT Telecom into a single entity, known as National Telecom (NT) within 3Q20, we consider it highly possible that this merger could face delays again, due to both organisations’ labour union issues. We note that both state-owned agencies will also need to settle all outstanding litigation with operators in the industry, as part of the asset consolidation.
While we weigh more positive on the operators’ side – as we think the settlement amount is likely to be lower than the initial amount outstanding – we also think this merging would not impact the existing partnership agreements between the operators and both companies. We note that existing leases or rental agreements for network equipment or spectrum have been sealed and are not to be affected from the merger.
In term of industry landscape, we do not think this merging could create a significant impact on existing market share structure (both the mobile and FBB markets). This is mainly due to both companies’ weak competitive position in the existing market, the unclear business plan post-merger and the redundancy of employee structures that will need more time to settle.
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Figure 27: Merger of TOT and CAT
Source: Thairath
2G shutdown. While the 2G shutdown has been postponed again, we expect operators to benefit from the shutdown when it takes place as telcos can free up some spectrum bandwidth capacity and save some maintenance capex in the short term. However, there should be no significant impact to TRUE’s core earnings. We believe device subsidies are unlikely – but some operators might take this opportunity to acquire new postpaid subs during this transition. However, the size of subsidies should be irrelatively small, given 2G subs’ ARPU and contributions, ie insignificant to its operation.
Brief Overview TRUE is a leading integrated telecommunications provider with full-scale convergence services in Thailand. It offers mobile, broadband internet, pay-TV as well as business solutions and other digital services. It was listed as TelecomAsia Corp in 1993 before being rebranded as True Corp in 2004. Majority-owned by CP Group (50.6% stake), one of the leading agro-conglomerates in Thailand, its latest capital raised in 2014 resulted in China Mobile becoming its second largest shareholder – with a 18% stake. We believe this strategic partnership was formed to strengthen business fundamentals significantly, in terms of international business opportunities, innovation through research & development, and cost optimisation on network & device procurement through China Mobile’s network cooperation. While we believe TRUE is one of the most competitive companies in terms of providing network quality and convergence services, it has spent more on capex investments than its peers over the past 10 years, to boost network coverage and capacity. The company also expand its product portfolio to various services to increase customer engagement from the individual to household levels. This resulted in a lower churn rate and customer loyalty improvement over the past few years. Its business can be categorised into three segments, which we detail below.
True mobile (TrueMove H – 73% of total revenue) This was rebranded from TrueMove in 2006 and previously known as TA Orange. This was a first-mover in providing mobile services on 3G and 4G LTE technology nationwide. Currently, it holds spectrum bandwidth of 2x65MHz from both high and low bandwidths, through five licences – 700MHz, 850MHz, 900MHz, 1800MHz and 2100MHz. This has more than 98% in country coverage.
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Figure 28: TRUE’s spectrum portfolio TRUE TB MHz 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 700 10 15 yrs 850 15 exclusive right to usd CAT's 850MHz 900 10 15 yrs 1800 15 18 yrs 2100 15 15 yrs Source: Company data, RHB
In terms of operations, TRUE is ranked second among the three major mobile services providers in Thailand. It surpassed DTAC in terms of market share in 2017. Its current market share as at 2Q19 stands at 32% (29.8m total subs), vs AIS’ market share of 45% and DTAC of 22.5%. Whereas TRUE’s subscriber growth has outpaced the industry average and its peers over the past three years, total subscriber 3-year CAGR has been at 11.5% (pre-paid: 10.7%, post-paid: 14%) despite intense competition. It has also recorded healthy organic growth from an ongoing pre-paid to post-paid migration. TRUE’s 7.9m postpaid subs (c.26% of its total subs) proportion has continued to increase, from 18.5% in 1Q15. Figure 29: Industry subscriber growth
Source: Company data, RHB
Meanwhile, TRUE’s blended ARPU has been relatively low vs the industry average and peers, given its discount pricing strategy (to win over pre-paid and post-paid subs). 2Q19 blended ARPU improved to THB 212.00 per month, on competition beginning to ease. We expect ARPU to continue growing in 2H19, as unlimited data packages – which have pressured the industry since 2018 – will begin to expire then. However, we believe TRUE will need more time to change its market position, while maintaining its growth momentum in the long term.
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Figure 30: Industry blended ARPU (THB/month)
300.0 AIS DTAC TRUE Industry
275.0 256
250.0 249
239 225.0 212 200.0
175.0
150.0 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19
Source: Company data, RHB
TRUE offers a wide range of mobile devices and accessories (under both global and house brands) – while enjoying a cost advantage, due to its synergy with China Mobile. While we expect its mobile device sales to scale down this year, thanks to the industry’s subs acquisition trend (ie changing from using device subsidies to discount pricing strategies), its strong convergence services should enable it to bundle packages with value-added features. Figure 31: TRUE’s bundled packages and convergence items
Source: Company data, RHB
This should bolster earnings, as it should have the edge in enjoying cheaper subs acquisition costs (bundling is cheaper than device subsidies). TRUE has guided for capex of THB40bn in 2019F. We note that this will be mostly spent on enhancing and maintaining capacity – rather than on expanding coverage. While capex should scale down soon, we expect cash capex to remain high, pressuring liquidity until 2021 – in light of its 5-year vendor finance negotiation. While TRUE should benefit from the lenient payment terms related to the 900MHz spectrum licence (approved by the National Council for Peace and Order (NCPO) after it decided to join the 700MHz spectrum allocation bid in June), we believe it will adopt a more cautious stance in the next spectrum auction. We also believe it will put more emphasis on managing cash flow than acquiring more spectrum ahead, especially without a revenue generation plan in hand. On regulatory fee prospects, the NBTC approved the reduction in annual regulatory fees of the telco businesses – operators who hold NBTC licences have to pay regulatory fees in three categories:
i. Licence fees
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Figure 32: New progressive rates on licence fee
Service revenue New progressive licence fee rate (THBm)
0-100 0.125% 101-500 0.25% 501-1,000 0.50% 1,001-10,000 0.75% 10,001-25,000 1% 25,001-50,000 1.25% >50,000 1.50%
Source: Company data, RHB
The latest operating fee structure will impose licence fees on a step-rate basis. Operators earning revenues up to THB100m per year will be subjected to a fee of 0.125% of total service revenue (down from 0.25%), as Figure 32 illustrates. Currently, all of the industry’s key players are subject to the new licence fee rate of 1.5%, as they generate over THB50bn in revenue pa.
ii. Universal service obligation fees (USO) Figure 33: AIS’ mobile internet package
Previous New USO fee USO 3.75% 2.50%
Source: Company data, RHB
The NBTC has also reduced the USO fee to 2.5% of service revenue from 3.75%.
iii. Numbering fees
Telcos are subject to numbering fees of THB2 per month per mobile number under its operations.
These changes point to a decline in total regulatory fees for the licence holders to roughly 4% of their service revenues, from 5.25%. This has been reflected in True’s operating performance since 2014. We expect regulatory fees to stay within the range of 2-2.5% of service revenues in 2019.
True Online (True Online – 20% of total revenue) True Online comprises fixed line telephone, broadband internet and solutions, business data services & gateways and other value-added services. The broadband internet business is the key contributor to True Online’s numbers, and it holds a market share of 47.6% with 3.6m subscribers as at end-2Q19. The company has an extensive range of broadband propositions in both standalone and convergence packages, ranging from 50Mbps to 1Gbps. These also come with various bundling products such as fixed-line telephone, TV, TrueID and TrueYou. It also has a strong enterprise segment, offering services to corporate customers through various integrated solutions such as the digital data network, metro Ethernet (a fibre-to-building service designed specifically for business customers) and IP- lease lines.
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Figure 34: FBB subs & ARPU Figure 35: FBB service revenue (THBm)
4.5 FBB subs (million) FBB ARPU (THB/month) 750 8,000 FBB service revenue 50.0% FBB service revenue (YoY%) 4.0 3.6 700 7,000 40.0% 3.5 6,263 3.5 6,000 650 30.0% 3.0 5,000 2.5 600 20.0% 552 552 4,000 2.0 550 10.0% 3,000 1.5 500 0.0% 2,000 1.0 -3.5% 450 -10.0% 0.5 1,000
0.0 400 0 -20.0% 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Source: Company data, RHB Source: Company data, RHB
While its broadband service revenue 3-year CAGR (from 2017-2019) of 12.9% mainly stemmed from the increase in FBB subs to 3.6m (12%) from 2.6m, ARPU declined from the intense competition in the industry by an average of 6% each year. This led to it booking lower revenue in 2Q19. Figure 36: True Online’s gaming package
Source: Company data, RHB
Whereas we anticipate TRUE to continue offering new products like gaming packages or ultra-high speed internet through its convergence proposition to uplift business ARPU, management’s recent move to upgrade standard speeds for long-term customers for free should reduce the churn rate, amidst intense competition. While it has tried to scale down its discount pricing strategy, we are still cautious on its business ARPU turnaround, since competitors are still adopting aggressive pricing strategies. While the competition in the high-quality subscriber segment is expected to be pressured from the penetration of AIS Fibre, we think TRUE will need more time to sustainably grow its business ARPU in the long term. True pay-TV (TrueVisions – 7% of total revenue). TrueVisions was formed via a merger between two big cable TV players, International Broadcasting Corporation (IBC) and United broadcasting corporation (UBC Cable), in 1998. This resulted in TrueVisions becoming the largest pay-TV provider in Thailand. While the company secured the broadcasting and television network licenses for its pay-TV business from NBTC until 2028, it also entered into a new segment – digital TV (free to air) – by acquiring two licences for a variety and news channel, namely True4U and TNN24, in 2014. While advertising revenue became a revenue generator for TrueVisions, the majority of turnover still came from pay-TV subscriptions.
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Figure 37: TrueVisions’ revenue breakdown (THBm)
4,000 Start digital TV 3,500 business Revenue from Advertisement 3,000
2,500 Revenue from Music & Other 2,000 entertainment
1,500 Revenue from Subscription 1,000
500
0 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Source: Company data, RHB
The pay-TV business’ growth momentum has toned down, after it terminated its contract with HBO in 1Q17. While both subs and ARPU have dropped slightly, TrueVisions’ revenue remained flat – thanks to the growth of advertising revenue.
Figure 38: Pay-TV subscribers Figure 39: Pay-TV ARPU
6.0 Pay-Tv subs (million) Pay-Tv subs (QoQ%) 15.0% 600 Pay-Tv ARPU (THB/month) 15.0% Pay-Tv ARPU (QoQ%)
5.0 10.0% 500 10.0%
4.0 5.0% 400 5.0% 2.1%
3.0 0.0% 300 0.0%
-1.1% 2.0 -5.0% 200 -5.0%
1.0 -10.0% 100 -10.0%
0.0 -15.0% 0 -15.0% 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Source: Company data, RHB Source: Company data, RHB
While we have a long-term negative view on this business – given the penetration of OTT streaming services – we do see more revenue upside from its content segment after the company established True CJ creation (a JV with CJ ENM from South Korea, formed to sublicense TrueVisions’ series to China buyers). However, we think this will need more time before this unit can generate significant revenue.
True Digital group, a new business unit. While revenue contribution from this business is still relatively small and reported as part of the three core businesses above, management guided that the company will shift focus more on this unit going forward, to expand its ecosystem as a digital service provider. This unit’s segment comprise:
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Figure 40: TrueOnline gamer package
Source: Company data, RHB
i. Digital media platform (TrueID) where company offers digital entertainment content including movies, news, sport and other programmes to customers across platforms such as mobile applications, websites and OTT media; ii. O2O and privilege platform, which offers privilege and point programmes to its customers. These are badged as TruePoint and TrueYou, and are aimed to improve the loyalty of its core business customers. Facilities include True Smart Merchant, which features tools that link a customer to its ecosystem and e-payment (via QR code) services; iii. Analytics. It is a leader in the Thai analytics service market, leveraging on its big-data platform. It aims to provide data analytics solutions to customers using hyper-targeted advertising, communication and intelligence suites products; iv. Internet of things (IoT) via its nationwide cellular network on NB-IoT for IoT-related services and solutions. True has a strong IoT platform through its China Mobile partnership. This enables it to offer IoT services via multiple industries. This is especially prevalent in the real estate sector, where there has been a tangible increase in the usage of smart home devices that are equipped in new properties across the country. We believe this could help create further revenue upside for the company in the long term.
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3Q19 Results Preview
Better data monetisation to bolster mobile service revenue (MSR) growth. Excluding the extra revenue from asset divestment-related transactions, we expect TRUE’s MSR to continue growing in 3Q19, on improved ARPU and a higher subscriber base in both the pre- paid and post-paid segments. While we expect a higher-priced replacement plan offerings to be prolonged in 2H (unlimited data packages are still taken up by 25-30% of total subs), we anticipate its subs base growth to decelerate. This is due to its less-aggressive device subsidies plan and the lower-churn rate environment. That said, these developments are in line with its plan to switch focus to improving profitability over growing market share. While we expect blended ARPU to increase slightly to THB220/month (3.8% QoQ, 6.3% QoQ), we expect core MSR to continue outpacing the industry average and that of its peers, while meeting our forecast (4% YoY) and its guidance of mid-single digit growth in FY19 core service revenue. Favourable change in the trend of acquiring subs. While we have a positive view on TRUE’s strategy to move towards profitability over growing its topline, we believe its cash constraint will be the key factor limiting its ability to intensify its competitiveness. That said, we note that TRUE is a key beneficiary of the change in winning subs (as the industry moves towards convergence services), thanks to its strong valued-added services. This may improve customer engagement, lower its churn rate while improving opex in the long term. We expect it to see friendly competition in 2020, with each telco focusing on its own profitability and cash accumulation. FBB still intense, but has started to stabilise. Despite the prolonged irrational competition in the FBB market, we expect its FBB ARPU to begin stabilising in 2H, thanks to the positive feedback it garnered after shifting focus to higher-quality subscriptions. While we anticipate the launch of higher-priced convergence packages (bundling with TrueID box) and the significant discount (-70% from previous price) of its standalone ultra-high speed internet (True Gigatex Fibre) to lift ARPU slightly, its FBB core service revenue should resume growth in 3Q – mainly on ongoing subs acquisitions in the rural areas. Extra gains to drive FY19F earnings. We expect company to post an impressive FY19F net profit of THB 9.3bn (32% YoY) from gains on asset divestments of THB 4.5bn. That said, we also note that the impairment charge on assets and obsolete inventory-related transaction could bring about a downside risks to earnings. Management guided that there will be no special dividend in 2H, as it aims to restore its cash for the upcoming spectrum allocation. However, we expect the cost of service in 2020F to rise by 6% as a result of higher DIF rental cost from this asset divestment. Key risk: intensifying industry competition. While industry is slowly moving towards FMC, we do not think that DTAC will be able to compete in terms of product positioning – due to the dearth of its convergence services. We see some risk that the industry might get aggressive again (led by DTAC). This may spark deep discounting strategies, as DTAC may compensate for the lack of its convergence services in order to maintain its market share.
See important disclosures at the end of this report 21
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การจัดอันดับบรรษัทภิบาล 2561 (Thai Institute of Directors Association (IOD) – Corporate Governance Report Rating 2018
ADVANC AKP AMATA AMATAV ANAN AOT AP BAFS BANPU BAY BCP BCPG BRR BTS BWG CFRESH CHO CK CKP CM CNT COL CPF CPI CPN CSL CSS DELTA DEMCO DRT DTAC DTC EA EASTW EGCO GC GEL GFPT GGC GOLD GPSC GRAMMY GUNKUL HANA HMPRO ICC ICHI INTUCH IRPC IVL JSP KBANK KCE KKP KSL KTB KTC LHFG LIT LPN MAKRO MBK MCOT MINT MONO MTC NCL NKI NVD NYT OISHI OTO PCSGH PDJ PG PHOL PLANB PLANET PPS PRG PSH PSL PTG PTT PTTEP PTTGC PYLON Q-CON QH QTC RATCH ROBINS S & J SABINA SAMART SAMTEL SAT SC SCB SCC SCCC SDC SE-ED SIS SITHAI SNC SPALI SPRC SSSC STEC SVI SYNTEC TASCO TCAP THAI THANA THANI THCOM THIP THREL TIP TISCO TKT TMB TNDT TOP TRC TRU TRUE TSC TSTH TTCL TU TVD UAC UV VGI VIH WACOAL WAVE WHA WINNER
2S AAV ACAP AGE AH AHC AIRA AIT AKR ALLA ALT AMA AMANAH APCO AQUA ARIP ARROW ASIA ASIMAR ASK ASN ASP ATP30 AU AUCT AYUD BA BBL BDMS BEC BEM BFIT BGRIM BIZ BJC BJCHI BLA BOL BPP BROOK BTW CBG CEN CENTEL CGH CHEWA CHG CHOW CI CIMBT CNS COM7 COMAN CPALL CSC CSP DCC DCORP DDD EASON ECF ECL EE EPG ERW ETE FN FNS FORTH FPI FSMART FVC GBX GCAP GLOBAL GLOW GULF HARN HPT HTC HYDRO ICN ILINK INET IRC ITD JAS JCKH JKN JWD K KBS KCAR KGI KKC KOOL KTIS L&E LANNA LDC LH LHK LOXLEY LRH LST M MACO MAJOR MALEE MBKET MC MEGA METCO MFC MFEC MK MOONG MSC MTI NCH NEP NINE NOBLE NOK NSI NTV NWR OCC OGC ORI PAP PATO PB PDI PJW PLAT PM PORT PPP PREB PRECHA PRINC PRM PT QLT RICHY RML RS RWI S S11 SALEE SANKO SAWAD SCGS SCI SCN SE SEAFCO SEAOIL SELIC SENA SFP SIAM SINGER SIRI SKE SMK SMPC SMT SNP SORKON SPC SPI SPPT SPVI SR SSF SST STA SUC SUSCO SUTHA SWC SYMC SYNEX TACC TAE TAKUNI TBSP TCC TEAM TFG TFMAMA THRE TICON TIPCO TK TKN TKS TM TMC TMI TMILL TMT TNITY TNL TNP TNR TOA TOG TPA TPAC TPBI TPCORP TRITN TRT TSE TSR TSTE TTA TTW TVI TVO TWP TWPC U UMI UOBKH UP UPF UPOIC UT UWC VNT WHAUP WICE WIIK XO YUASA ZMICO
7UP ABICO ABM AEC AEONTS AF AJ ALUCON AMARIN AMC AS ASAP ASEFA ASIAN BCH BEAUTY BGT BH BIG BLAND BM BR BROCK BSBM BTNC CCET CCP CGD CHARAN CHAYO CITY CMO CMR COLOR CPL CPT CRD CSR CTW CWT D DCON DIGI DIMET EKH EMC EPCO ESSO ESTAR EE FLOYD FOCUS FSS FTE GENCO GIFT GJS GLAND GPI GREEN GTB GYT HTECH IFS IHL III INOX INSURE IRCP IT ITEL J JCK JMART JMT JTS JUBILE KASET KCM KIAT KWC KWG KYE LALIN LEE LPH MATCH MATI MBAX M-CHAI MDX META MILL MJD MM MODERN MPG NC NDR NETBAY NNCL NPK OCEAN PAF PDG PF PICO PIMO PK PL PLE PMTA PPPM PRIN PSTC PTL RCI RCL RJH ROJNA RPC RPH SAMCO SAPPE SCP SF SGF SGP SKN SKR SKY SLP SMIT SOLAR SPA SPCG SPG SQ SRICHA SSC SSP STANLY STPI SUN SUPER SVOA T TCCC TCMC THE THG THMUI TIC TITLE TIW TMD TOPP TPCH TPIPP TPOLY TTI TVT TYCN UEC UMS UNIQ VCOM VBIHA VPO WIN WORK WP WPH ZIGA
Website: www.thai-iod.com IOD (IOD Disclaimer) ผลสํารวจการกํากับดูแลกิจการบริษัทจดทะเบียนที่แสดงไว้นี้ เป็นผลที่ได้จากการสํารวจและประเมินข้อมูลที่บริษัทจดทะเบียนในตลาดหลักทรัพย์แห่งประเทศไทย และ ตลาดหลักทรัพย์ เอ็ม เอ ไอ (“บริษัทจดทะเบียน”) เปิ ดเผยต่อสาธารณะและเป็ นข้อมูลที่ผู้ลงทุนทั่วไปสามารถเข้าถึงได้ ผลสํารวจดังกล่าวจึงเป็นการนําเสอนข้อมูลในมุมมอง ของบุคคลภายนอกต่อมาตรฐานการกํากับดูแลกิจการของบริษัทจดทะเบียน โดยไม่ได้เป็นการประเมินผลการปฏิบัติงานหรือการดําเนินกิจการของบริษัทจดทะเบียนอีกทั้งมิได้ ใช้ข้อมูลภายในของบริษัทจดทะเบียนในการประเมิน ดังนั้นผลสํารวจที่แสดงนี้จึงไม่ได้เป็นการรับรองถึงผลการปฏิบัติงานหรือการดําเนินการของบริษัทจดทะเบียนและไม่ถือ เป็นการให้คําแนะนําในการลงทุนในหลักทรัพย์ของบริษัทจดทะเบียนหรือคําแนะนําใดๆ ผู้ใช้ข้อมูลจึงควรใช้วิจารณญาณของตนเองในการวิเคราะห์และตัดสินใจในการใช้ ข้อมูลใดๆที่เกี่ยวกับบริษัทจดทะเบียนที่แสดงในผลสํารวจนี้ ทั้งนี้บริษัทหลักทรัพย์ อาร์เอชบี (ประเทศไทย) จํากัด (มหาชน) มิได้ยืนยันหรือรับรองถึงความครบถ้วนและถูกต้องของผลสํารวจดังกล่าวแต่อย่างใด
ข ้อมูล Anti-Corruption Progress Indicator 2560 ประกาศเจตนารมณ์ CAC
ได้รับการรับรอง CAC
N/A
Source: Thai Institute of Directors ข้อมูลบริษัทที่เข้าร่วมโครงการแนวร่วมปฏิบัติของภาคเอกชนไทยในการต่อต้านทุจริต (Thai CAC) ของสมาคมส่งเสริมสถาบันกรรมการบริษัทไทย (ข้อมูล ณ วันที่ 17 ต.ค.) • ได้ประกาศเจตนารมณ์เข้าร่วม CAC • ได้รับการรับรอง CAC การเปิดเผยการประเมินดัชนีชี้วัดความคืบหน้าการป้องกันการมีส่วนเกี่ยวข้องกับการทุจริตคอร์รัปชัน (Anti-Corruption Progress Indicators) ของบริษัทจดทะเบียนในตลาดหลักทรัพย์แห่งประเทศไทยที่ จัดทําโดยสถาบันที่เกี่ยวข้องซึ่งมีการเปิดเผยโดยสํานักงานคณะกรรมการกํากับหลักทรัพย์และตลาดหลักทรัพย์นี้เป็นการดําเนินการตามนโยบายและตามแผนพัฒนาความยั่งยืนสําหรับบริษัทจดทะเบียนโดย ผลการประเมินดังกล่าว สถาบันที่เกี่ยวข้องอาศัยข้อมูลที่ได้รับจากบริษัทจดทะเบียนตามที่บริษัทจดทะเบียนได้ระบุในแบบแสดงข้อมูลเพื่อการประเมิน Anti-Corruption ซึ่งอ้างอิงข้อมูลมาจากแบบแสดง รายงานข้อมูลประจําปี แบบ (56-1) รายงานประจําปีแบบ (56-2) หรือในเอกสารหรือรายงานอื่นที่เกี่ยวข้องซึ่งเป็นบุคคลภายนอก โดยมิได้เป็นการประเมินการปฏิบัติของบริษัทจดทะเบียนในตลาดหลักทรัพย์ แห่งประเทศไทยและมิได้ใช้ข้อมูลภายในเพื่อการประเมิน เนื่องจากผลการประเมินดังกล่าวเป็นเพียงผลการประเมิน ณ วันที่ ปรากฏในผลการประเมินเท่านั้น ดังนั้นผลการประเมินจึงอาจเปลี่ยนแปลงได้ ภายหลังวันดังกล่าว หรือรับรองความถูกต้องครบถ้วนของผลประเมินดังกล่าวแต่อย่างใด