THAILAND SET

Beware of Bottom-Fishing with DTAC as Price Wars in Thai Telecom Sector are About to Erupt

Witawat (Ed) Wijaranakula, Ph.D.
Wed Feb 17, 2016

Total Access Communication Pcl (SET:DTAC), 42.6% owned by Norwegian telecom giant Telenor as of March 31, 2015, is the second largest telecom operator in Thailand with an estimated subscription market share of 29%, or 28.4 million subscribers, of which 2.3 million are on the 4G network. The company has two reportable segments, mobile telephone service and related services, and sales of cellular handsets and other telecommunications equipment through its World Media network of retail stores.

Total Access said on February 3, 2016, that its fourth-quarter 2015 revenues were 23.25 billion baht, exceeding the 22.73 billion baht consensus estimate of 4 analysts, according to the Financial Times. The company posted fourth-quarter 2015 earnings of 0.42 baht per share, missing the 0.54 baht per share consensus estimate of 6 analysts. 

The company reported a dividend of 2.93 baht a share in 2015, which represents a 57.3% decrease from the previous year. The 24 analysts covering Total Access expect dividends of 1.77 baht a share for the upcoming fiscal year, representing a decrease of 39.62%. The next earnings announcement for the first-quarter 2016, is expected on April 22. 

Total Access Communication lost the 4G license auction bids twice to its rivals, Advanced Info Service Pcl (SET:ADVANC), True Corporation (SET:TRUE) and Jasmine International (SET:JAS), held by the National Broadcasting and Telecommunications Commission (NBTC) of Thailand in November and December. Total Access CEO Lars-Ake Norling said the company will use the funds that it planned to spend on a license to invest in its network and marketing campaigns for the company’s 3G and 4G services, according to Bloomberg. 

This week, Total Access announced that the company will invest more than 70 billion baht over the next three years to develop its 4G wireless network and increase the bandwidth on the 1800 MHz to 20 MHz, meaning more services to a wider range of 4G enabled devices.

The shares of DTAC have been under selling pressure and trading under the 200-day moving average since mid-2014, after it broke down the bearish ascending wedge chart pattern. DTAC shares bounced off the 6-year low of 27.50 baht a share in early January and are now trading in the range between 30 baht a share and 37.25 baht a share. DTAC could be trading in this range for a while, or even pull back to a lower level, as no one can forecast the outcome of the price wars in the Thai telecom sector.

Fitch, an international credit rating agency, issued a report after the NBTC action in December saying that it expects the data tariff in Thailand's mobile market to decline further as incumbent operators, Advanced Info Service, Total Access, and True, compete on price with Jasmine, while marketing expenses are also likely to rise. Fitch believes that incumbents are also likely to increase investments in 4G capacity ahead of Jasmine's launch and to support growth in data traffic. As a result, free cash flows are likely to be negative and financial leverages will increase in 2016.

As of February 13, 2016, the consensus forecast amongst 24 investment analysts polled by the Financial Times gave DTAC a HOLD recommendation, with the median 12-month price target of 35 baht a share.

Disclosure: Long position in ADVANC. No position in DTAC and other companies mentioned. No recommendation.

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