ADVANC - 3Q24: As expected

ADVANC reported 3Q24 core profit of Bt8.4bn, slipping 0.9% QoQ, but growing 11% YoY, meeting INVX and consensus estimates. In 4Q24F, we expect a drop in core profit QoQ on seasonality (high marketing) with YoY still growing. Rate OUTPERFORM with a DCF-based end-2025 TP of Bt300 (6% WACC and 2% LTG). We like ADVANC as it will continue to benefit from market consolidation. Valuation is undemanding in terms of EV/EBITDA vs regional peers.

3Q24 core profit in line. ADVANC reported 3Q24 net profit of Bt8.8bn, up 2.5% QoQ and 7.9% YoY. In the quarter, it booked FX gain of Bt364mn. Stripping this out shows core profit of Bt8.4bn, slipping 0.9% QoQ, but up 11% YoY and lining up with both INVX and consensus. Overall, we have a neutral view on 3Q24 results and 9M24 core profit accounted for 81% of our full-year forecast.

Revenue growth continues across key businesses. Mobile revenue (59% of total revenue) was Bt31bn, up 0.6% QoQ and 5.6% YoY. The QoQ growth looks low, but was actually solid as 3Q is normally a low season for the mobile business, with the higher subscriber base supporting growth. YoY growth was driven by rising ARPU as a result of less pricing competition. ADVANC reported blended ARPU of Bt223, down 0.8% QoQ on seasonality (lower roaming revenue), but up 3% YoY. FBB (14% of total revenue) revenue was Bt7.4bn, growing 2.1% QoQ and 146.2% YoY; behind the high YoY growth was contribution from TTTBB. ARPU rose 0.8% QoQ and 18% YoY to Bt505. The QoQ growth reflected success in selling high-value packages such as entertainment packages with a starting price of Bt599/mth.

Rising cost QoQ, mainly from SG&A. In 3Q24, cost of service was Bt24.9bn, flat QoQ but increasing 14% YoY on contribution from TTTBB. SG&A was Bt7.4bn, up 12% QoQ and 48.6% YoY. The QoQ rise came from both admin and marketing expenses: admin grew 11% QoQ and 53% YoY to Bt5.9bn on higher accrued bonus cost (QoQ) and impact of TTTBB acquisition (YoY). Marketing was Bt1.5bn, up 17% QoQ and 29% YoY. Key driver for QoQ growth was the launch of iPhone 16.

Expect 4Q24F earnings to drop QoQ, but grow YoY. We expect higher YoY core profit in 4Q24F on eased pricing competition. We expect a QoQ drop in core profit as 4Q is normally high season for marketing spending.

Key takeaways from conference call. ADVANC hosted a post-results conference call. A big question was the impact of the flooding, but management said that the effect has been small. Other questions dealt with risk from its cloud business, expected to go live in 1Q25, as many hyperscalers, including AWS and Google, are coming to Thailand. So far, the feedback from potential customers is good. In reference to the upcoming spectrum auction, it said it would study all the opportunities. We see potential cost savings from the auction of Bt2.1bn p.a., but have not factored this into our assumptions until there is clarity on bidding rules.

Risks and concerns. Weak economic recovery would hamper ARPU uplift in the mobile and FBB businesses. Key ESG risk for the company is in the arena of cybersecurity and data privacy for subscribers. This would negatively impact its service revenue.