I maintain my “Neutral” rating on Thailand-listed telecommunications company Total Access Communication Public Company Limited (OTCPK:TACYY) (OTC:TACJF) (OTC:TCCMF) [DTAC:TB] or DTAC.
The impact of the coronavirus pandemic on DTAC’s 1Q2020 financial results has been mixed, with an increase in data usage with more people staying at home being offset by a decrease in monthly active users and international roaming revenue as a result of travel restrictions. Also, new relief measures introduced to help ease the financial burden for consumers relating to telecommunication services are not necessarily beneficial for mobile operators. The key risk for DTAC is that new regulatory changes which are positive for consumers but negative for Thai mobile operators are introduced subsequently.
On the flip side, DTAC is perceived as a “defensive shelter” for risk-averse investors. Market consensus expects the company’s revenue to decline only marginally by -1.4% from Bt81,167 million in FY2019 to Bt80,054 million in FY2020. DTAC also offers consensus forward FY2020 and FY2021 dividend yields of 2.8% and 3.3%, respectively. As such, a “Neutral” rating for DTAC is justified.
This is an update of my prior article on DTAC published on January 30, 2020. DTAC’s share price has declined by -6.7% from Bt44.75 as of January 29, 2020 to Bt41.75 as of May 15, 2020 since my last update. DTAC trades at 5.5 times consensus forward next twelve months’ EV/EBITDA, versus its historical five-year and 10-year average consensus forward next twelve months’ EV/EBITDA multiples of 5.2 times and 5.9 times, respectively.
Readers have the option of trading in DTAC shares listed either on the Over-The-Counter Bulletin Board/OTCBB as ADRs with the tickers TACYY and TACJF, or on the Stock Exchange of Thailand with the ticker DTAC:TB. For DTAC shares listed as ADRs on the OTCBB, note that liquidity is low and bid/ask spreads are wide.
For DTAC shares listed in Thailand, there are limited risks associated with buying or selling the shares in terms of trade execution, given that the Stock Exchange of Thailand is one of the major stock exchanges that is internationally recognized and there is sufficient trading liquidity. Average daily trading value for the past three months exceeds $10 million and market capitalization is above $3 billion, which is comparable to the majority of stocks traded on the US stock exchanges. Institutional investors who own DTAC shares listed in Thailand include State Street Europe, The Vanguard Group, and Dimensional Fund Advisors among others. Investors can invest in key Asian stock markets either using U.S. brokers with international coverage, such as Interactive Brokers, Fidelity, or Charles Schwab, or local brokers operating in their respective domestic markets.
Impact Of Coronavirus Pandemic On DTAC’s 1Q2020 Results Has Been Mixed
DTAC’s service revenue, excluding interconnection charges, was Bt15.3 billion in 1Q2020, which represented a +2.6% YoY increase as strength in the postpaid segment was partially offset by weakness in the prepaid segment. The company saw postpaid revenue grow by +9.0% YoY in the most recent quarter, while its prepaid revenue fell by -6.3% YoY over the same period.
There was a +47,000 QoQ increase in the number of postpaid subscribers for DTAC in 1Q2020, which accounted for 31.4% of the company’s total subscribers as of March 31, 2020. The company’s ARPU (Average Revenue Per User) increased +5.5% YoY, which was mainly driven by a growth in data usage for its postpaid subscribers. DTAC’s data usage per subscriber per month grew +69.5% YoY and +23.9% QoQ to 15.8GB in 1Q2020, as more people in Thailand either stayed indoors for longer periods of time or worked from home. Video conferencing, video streaming, online shopping and delivery apps were among those that saw significant increases in data usage.
On the other hand,
Similarly, DTAC’s international roaming revenue fell -32.1% YoY and -10.1% QoQ to Bt188 million in 1Q2020, as fewer Thailand residents traveled overseas last quarter.
Store closures as a result of measures to contain the coronavirus pandemic in Thailand also meant that it was challenging for DTAC to add new subscribers in both the prepaid and postpaid segments. At the company’s 1Q2020 earnings call on April 24, 2020, DTAC noted that “50% of our shops are closed” and “that will have an impact on the new customers who are coming in and therefore, acquisition revenue.” The company’s sales of handsets and starter kits decreased -37.8% QoQ and -20.8% YoY to Bt1,697 million in 1Q2020, which was attributable to store closures and accounting adjustments relating to the adoption of the new Thai Financial Reporting Standard 15.
Another concern lies with the potential increase in bad debts for DTAC’s postpaid subscribers. As the coronavirus pandemic takes its toll on the Thai economy, it is a possibility that a certain proportion of DTAC’s postpaid subscribers could have difficulties paying their telecommunication bills on time. DTAC highlighted at its 1Q2020 earnings call on April 24, 2020 that “we need to watch it very carefully how because of economic reasons or any other reasons that if customers are not willing to pay”, but the company stressed that “we don’t have those indications at this point in time.”
New Relief Measures For Consumers Are Not Necessarily Positive For Mobile Operators
The National Broadcasting and Telecommunications Commission or NBTC has recently introduced two new relief measures to help to ease the financial burden for consumers with respect to their telecommunication needs.
Starting from April 10, 2020, Thai citizens can enjoy 10GB of free internet data for a month by submitting a request to their respective mobile operators. On the positive side of things, mobile operators such as DTAC will be reimbursed by the NBTC for providing free internet data subsequently with compensation estimated at Bt100 per subscriber.
On the negative side of things, it implies that DTAC can’t benefit from the full impact of the higher demand for internet data, as many consumers will be deterred from upgrading to new plans with higher data caps. According to DTAC, over 2 million of the company’s subscribers have already registered to be eligible for this 10GB of free internet data.
Another new relief measure introduced by NBTC is free 100-minute voice calls for a 45-day period starting on May 1, 2020. As it stands now, DTAC and the other mobile operators are not expected to receive any compensation from NBTC with respect to this new relief measure on free voice calls.
The key risk for DTAC is that new regulatory changes which are positive for consumers but negative for Thai mobile operators are introduced subsequently. Notably, the NBTC had earlier contemplated asking the Thai mobile operators to offer prepaid mobile plans at discounts of up to 30%.
Potential Refinancing Risk Is Not As Bad As Feared
DTAC has close to a third of its total debt up for refinancing in 2020, which comprises Bt12 billion in bank loans and Bt4 billion in debentures.
But refinancing risk for DTAC might not be as bad as feared.
Firstly, there is an option for DTAC to roll over approximately half of the company’s Bt12 billion in bank loans maturing this year.
Secondly, DTAC has approximately Bt10 billion in cash on its books and Bt11 billion in un-drawn credit facilities. In addition, the company generated annual operating cash flow in the Bt17-18 billion range for FY2018 and FY2019.
Thirdly, DTAC’s spectrum payments for FY2020 are only due in December this year, and the amount payable is less than Bt14 billion.
DTAC trades at 5.5 times consensus forward next twelve months’ EV/EBITDA based on its share price of Bt41.75 as of May 15, 2020. As a comparison, the stock’s historical five-year and 10-year average consensus forward next twelve months’ EV/EBITDA multiples were 5.2 times and 5.9 times, respectively.
DTAC’s peers and competitors, Advanced Info Service Public Company Limited (OTCPK:AVIFY) (OTCPK:AVIVF) [ADVANC:TB] and True Corporation Public Company Limited (OTC:TCPFF) [TRUE:TB], are valued by the market at relatively higher consensus forward next twelve months EV/EBITDA multiples of 8.3 times and 7.4 times, respectively.
DTAC offers consensus forward FY2020 and FY2021 dividend yields of 2.8% and 3.3%, respectively.
The key risk factors for DTAC are a larger-than-expected negative impact of the coronavirus pandemic on the company, new regulatory changes that are negative for Thai mobile operators, and lower-than-expected dividends in the future.
Note that readers who choose to trade in DTAC shares listed as ADRs on the OTCBB (rather than shares listed in Thailand), could potentially suffer from lower liquidity and wider bid/ask spreads.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.