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SECTOR UPDATE

ICT 17 July 2015November auctions to include 5MHz of 1800MHz from CAT/DTAC

Sector: ICT Overweight

Valuation and recommendation

Investment thesis We believe that the inclusion of 5MHz of the 1800MHz spectrum in the upcoming November auctions is a positive development for the sector and benefits the potential 4G-license winners because the remaining 5MHz block will be fully and efficiently utilized for data, which would be far better off for mobile operators than utilizing the 2.5MHz block for voice. Moreover, the state will accrue more money from the additional 5MHz added to the 4G-1800MHz auctionsreserve prices for the 1800MHz spectrum have been raised from Bt11.6bn to Bt13.9bn.

We remain bullish about Mobile operators and rate the ICT sector OVERWEIGHT in anticipation of incremental 4G values to be factored into our models sooner. Our two top picks for the ICT sector based on the 4G auction plays are ADVANC (the potential winner of a 900MHz and a 1800MHz licenses) and INTUCH (the indirect beneficiary as the holding company owning 40.5% stake in ADVANC). DTAC is our third pick, due to it being one of the other potential 900MHz license winners, the 4G laggard play and the fundamentals recovery in FY16.

The 5x2 MHz of 1800MHz to finally be included in Nov auctions On July 16, the NBTC received a letter from the ICT Minister to return CATs 4.8MHz of 1800MHz bandwidth (of a total unused 25MHz of DTACs existing 1800MHz concession) to the NBTC without any conditions. Hence, the 30MHz4.8MHz from CAT/DTAC and 25.2MHz from True Move and DPCof 1800MHz bandwidth will be up for auction on Nov 11. The 30x2 MHz of 1800MHz spectrum will be split into two licenses, each of which contains 15x2 MHz. CAT must return the 4.8MHz back to the NBTC before Sept 25. We view that having an extra 5MHz in the 1800MHz auction would mean more efficient use of bandwidth to cater for high-quality data services; otherwise, operators will allocate the residual 2.5MHz block sizes for voice services.

New 15x2 MHz reserve price of 1800MHz set at Bt13.9bn Based on ITUs unchanged 1800MHz spectrum value of Bt663m/MHz, the spectrum and reserve values for one 15x2 MHz license will be Bt19,890m and Bt13,920m (or 30% of spectrum value), respectively. Those for one 12.5x2 MHz 4G-1800MHz license was set at Bt16,575m and Bt11,600m, respectively. If the bidders number less than three, the reserve price will be set as equal to 100% of the spectrum value.

The 10x2 MHz reserve price of 900MHz set at Bt11.3bn The NTC also approved the draft IM for the auctions of two licenses from the 900MHz spectrum (10x2 MHz each). Based on ITUs unchanged 900MHz spectrum value of Bt804m/MHz, the spectrum and reserve values for one 10x2 MHz license will be Bt16,080m and Bt11,260m (30% of spectrum value), respectively. The same will apply to the 900MHz auctions when the number of bidders is less than two. Moreover, the NTC approved the change of the 900MHz auctions to November 11, the same date as the 1800MHz auctions.

Rec. Target PER EPS PBV ROE Div

price (x) FY14-16 (x) (%) yield(Bt) growth (%)

FY15 (%) FY15 FY15 FY15ADVANC BUY 270 19.2 +8.2 15.7 81.7 5.2DTAC BUY 98 23.9 (9.4) 8.1 29.4 5.0TRUE HOLD 12 56.7 +33.7 3.6 6.8 1.1THCOM BUY 54 18.8 +20.3 2.1 11.8 2.4INTUCH BUY 109.5 15.2 +11.8 7.1 65.5 6.1SIM HOLD 3.0 14.2 +1.5 2.6 19.6 3.9SAMTEL BUY 28.5 16.5 +14.7 3.5 22.2 3.5SAMART BUY 38 15.4 +9.4 2.6 25.5 3.7Simple avg 22.5 11.3 5.7 32.8 3.9

Prasit Sujiravorakul Securities Fundamental Investment Analyst prasit@bualuang.co.th +66 2 618 1342

ICT - 2

Figure 1: Specific timeline for 900MHz and 1800MHz auctions in 2015

Current schedule Previous schedule New schedule

1800MHz frequency 900MHz frequency 900MHz frequency

Public hearing of the IM 17 July-17 August 5 August-9 September N/A

The IM publication in the Royal Gazette 26 August 23 September N/A

The auction invitation 28 August-28 September 28 September-28 October N/A

The submission of auction documents to the NBTC 30 September 30 October N/A

The pre-qualification (PQ) process 30 September-21 October 2-20 November N/A

The announcement of the PQ qualified bidders 21 October 20 November N/A

The pre-auction period 22 October-10 November 23 November-4 December N/A

The auction date 11 November 15 December 11 November

The license issuance December 2015 January 2016 N/A

Source: NBTC

Figure 2: Expected future spectrum holding for each private mobile operator

ADVANC (plus DPC) DTAC True Mobile

2100MHz (license) 15 15 15

850MHz (DTAC's concession/True Move-H's reseller contract) None 10 15

900MHz (concession) Returned None None

1800MHz (concession) Returned Returned Returned

30MHz of 1800MHz (license to be auctioned in Nov 2015) 15 None 15

20MHz of 900MHz (license to be auctioned in Nov 2015) 10 10 None

45MHz of 1800MHz (license to be auctioned in 2H16 or 1H17) 15 15 15

Total bandwidth on hand (MHz) 55 50 60

Source: Bualuang Research estimate

Figure 3: ITUs spectrum prices for 15x2 MHz license of 1800MHz and 10x2 MHz license of 900MHz 1800MHz Size Starting price Starting price Spectrum value/MHz Reserve price/MHz 15x2 MHz @ two licenses of bandwidths (at 70% of spectrum value) (at 100% of spectrum value) (Btm) (Btm)

First license 15 13,920 19,890 663 464Second license 15 13,920 19,890 663 464

900MHz10x2 MHz @ two licenses

First license 10 11,260 16,080 804 563Second license 10 11,260 16,080 804 563

Sources: NBTC and Bualuang Research estimate

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Sector comparisons

Bloomberg Price Market Cap

Code (local curr.)(US$

equivalent) 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E

Advanced Info Service ADVANC TB THB247.00 21,477 19.2 17.4 6.1 10.4 15.7 15.6 81.7 90.0 5.2 5.7Total Access Communication DTAC TB THB84.75 5,869 23.9 22.8 -21.6 4.8 8.1 8.6 29.4 36.7 5.0 5.3Shin Corporation INTUCH TB THB80.75 7,572 15.2 14.0 15.6 8.2 7.1 6.6 65.5 67.1 6.1 6.6Samart Corporation SAMART TB THB24.20 712 15.4 13.7 6.3 12.8 2.6 2.3 25.5 25.8 3.7 4.2Samart Telcoms SAMTEL TB THB21.60 390 16.5 14.4 14.9 14.7 3.5 3.2 22.2 23.1 3.5 4.0Samart I-Mobile SIM TB THB2.20 283 14.2 13.2 -4.2 7.7 2.6 2.4 19.6 19.3 3.9 4.2Thaicom THCOM TB THB35.75 1,146 18.8 16.9 29.9 11.4 2.1 2.0 11.8 12.2 2.4 2.6True Corporation TRUE TB THB11.50 8,276 56.7 86.0 250.3 -34.1 n.m. n.m. 6.8 4.3 1.1 0.7Simple average 22.5 24.8 37.1 4.5 5.9 5.8 33 34.8 3.9 4.2

PER (x) EPS Growth (%) PBV (x) ROE (%) Div Yield (%)

ICT - 4

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