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The SET closed down just 1.99 points for the week, at 1,282.93 on Friday, as turmoil in the Telecommunication services sector continued after the auction of two 4G spectrum licenses ended last weekend. The total loss in market capitalization among four top telecom companies this week alone was 148.34 billion baht, as investors dumped shares on concerns that the companies could have overpaid for the licenses and that an escalation of a price war in the Thai mobile phone market could soon erupt. As Advance Info Service put it in a company statement released after the auction, the company withdrew from the auction because the price for a license had stretched beyond fair value.
For the week, shares of Advanced Info Service, Thailand's largest mobile phone operator, took a 19.43% nosedive and lost 109.7 billion baht in its market capitalization, followed by shares of Total Access Communication, which tanked 19.08%, a 17.31 billion baht loss in market cap. Shares of True Corporation fared somewhat better, down just 6.1%, but still took an 11.03 billion baht loss in market cap, while the worst performer was broadband operator Jasmine International, whose shares were down 30.96%, a third of its market cap, or 10.30 billion baht.
Shares of mobile phone companies were rattled in the past two weeks, as the National Broadcasting and Telecommunications Commission (NBTC) of Thailand held its auction of the 900 MHz spectrum. One of the reasons that companies were trying to outbid each other is because a mobile company on the 900 MHz band can invest less to set up a smaller number of base stations to achieve the same coverage as those in the 1800 MHz band, since the 900 MHz band has 30-40% better coverage than the 1800 MHz band. True Corporation and Jasmine International won the bids and will pay a record 76.3 and 75.67 billion baht, respectively, for the two 4G spectrum licenses.
According to Kasikorn Securities, True Corporation will have to raise funds after the auction, meaning a share-dilution for existing investors. In June 2014, True Corporation, which was backed by Charoen Pokphand Group, raised about 65 billion baht through a rights share issue to boost its financial position. As part of its fundraising, True sold 18% of its stake, worth about 28.6 billion baht, to China Mobile.
Jasmine Mobile Broadband, which is wholly-owned by Jasmine International, said on Thursday that it has 100 billion baht on hand and will start rolling out 15,000 base stations nationwide to cover 90% of the population next year. The company said it has lined up 75 billion baht from a consortium of banks, which one of them could be Bangkok Bank. Shares of Bangkok Bank were down 2.23% for the week. Jasmine was also in talks with potential foreign partners to take up to a 30% stake, to help enhance its 4G technology and services, meaning a share-dilution.
Obviously, there are no 4G winners here as the Thailand Telecommunication services sector is at risk of a price war, which will turn profitable businesses into losses.
The Bank of Thailand (BOT) said on Friday that the bank trimmed its 2016 economic growth forecast to 3.5% from 3.7%, citing a greater slowdown in China's and other Asian economies and the severe drought in Thailand. Exports are expected to fall 5.5% this year and remain flat next year, compared to the previous 2016 forecast of a 1.2% rise. Last week, JP Morgan turned sour on Thailand, as the bank sees Thai GDP to grow only 2.9% next year and downgraded Thailand to underweight. HSBC is a little more upbeat and forecasts Thailand’s GDP growth to be 3.3% next year.
The USD/THB exchange rate was quoted at 36.015 baht per dollar on Friday, virtually unchanged for the week. The Thailand 10-year bond was yielding at 2.53% at the close on Friday, reflecting the volatile SET index. The yield spread between the Thailand 10-year bond and U.S. 10-year Treasury Note, yielding at 2.245% on Friday, printed at 2.85 percentage points.
Technically, the SET continues to trade in and out of bear market territory, below the 1,295.82 level. There is significant downside risk if the index breaks down the trendline support of the ascending (ASC) wedge chart pattern. In our opinion, the turmoil in the Telecommunication services sector could not have come at a worse time for the SET index, as it adds more downside risks when no one needs it.
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