We are turning less positive for the sector as we believe the benefit of market consolidation should be largely reflected in the share price as its valuation is now close to regional peers, suggesting further rerating should be limited. We also expect sector earnings growth to start decelerating in 3Q26F onwards. Additionally, we believe the new businesses are still small and should not be a driver for near-term earnings upside in 2H26F. TRUE is now our top pick with TP Bt18.5 as we believe its valuation is still attractive. We have a non-consensus NEUTRAL rating on ADVANC with a TP of Bt415 due to limited upside.
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Telecom – A well-played call reaches its target
Expect further valuation rerating to be limited. We have been bullish on the sector since Jan 2024 due to a more rational competitive landscape and attractive valuations compared to regional peers. The sector has performed well, with ADVANC and TRUE share prices outperforming SET by 53% and 140%, respectively. Sector valuations have also rerated meaningfully, especially for ADVANC, whose EV/EBITDA has risen from 6x to 9x (+1.5 SD), versus 5x to 6x for TRUE (at its historical average). We believe the benefits of industry consolidation are now largely reflected in the price. Therefore, further valuation rerating should be limited, and future stock performance will likely be driven by actual earnings rather than higher valuations.
Closing the valuation gap compared to regional peers. We reviewed the sector's 2027F PE multiple, which is now close to regional peers that have similar earnings growth profiles. The dividend yield is also at a similar level. Because of this, we believe the sector's risk-reward profile is no longer attractive.
Sector earnings growth should start to decelerate in 3Q26F. Another reason for our less positive view is the earnings growth outlook in 2H26F. We expect sector earnings growth to slow down from 3Q26F onward because the benefits of lower new spectrum costs will fade. We now forecast core earnings growth for the sector at 12.5% YoY in 2H26F, compared to 34.5% YoY in 1H26. This shows a clear step-down in growth momentum. Additionally, our 2026F and 2027F core profit estimates are in line with consensus, implying that the market also expects earnings growth to peak in 2Q26.
New businesses are too small to drive near-term earnings upside. Because the mobile business is reaching a mature stage, ADVANC and TRUE are trying to enter new businesses with higher growth potential. However, their EBITDA contributions are still small at less than 5% for both companies. We believe this is not enough to provide significant earnings upside in the short term.
TRUE is our top pick with non-consensus NEUTRAL for ADVANC. We maintain an OUTPERFORM rating for TRUE with a mid-2027F DCF-based TP of Bt18.5 (8.5% WACC and 1.5% LTG), as its valuation remains attractive compared to regional peers. TRUE is now our top sector pick. We have a non-consensus NEUTRAL rating on ADVANC with a mid-2027F DCF-based TP of Bt415 (6.1% WACC and 1.5% LTG), because we believe upside is limited due to valuations.
Key risks. A weak economic recovery would weaken revenue growth for mobile and FBB businesses. Key ESG risk for the sector is cybersecurity and data privacy for its subscribers, which could hit revenue (S).