็High Conviction: TRUE One surprise after another

TRUE reported core profit of Bt2.9bn, 36.1% above INVX on lower costs, and up 37.8% QoQ and turning around sharply from Bt1.6bn losses in 3Q23. Operations were also solid. We have upgraded our 2024F core profit to reflect the 9M24 beat and now expect TRUE to beat its EBITDA growth target. 4Q24F core profit is expected to again grow YoY, but we conservatively expect a slip QoQ. If it manages costs better than expected, there will be further upside to our forecast. Maintain OUTPERFORM with new DCF-based TP of Bt15 from Bt13 to reflect the earnings upgrade (7.9% WACC and 2% LTG). TRUE is our top pick in the sector.

Catalyst #1: 3Q24 core profit beat expectations. TRUE reported a net loss of Bt810mn (from Bt1.9bn losses in 2Q24 and Bt1.6bn losses in 3Q23), reflecting the booking of Bt3.9bn one-time expenses related to network modernization and Bt160mn FX gain (net tax). Stripping these out, core profit was Bt2.9bn, surging 37.8% QoQ and turning around from Bt1.6bn losses in 3Q23. This is 36.1% above INVX estimates. The key surprise was lower cost of services and SG&A than estimated, thanks to higher cost synergy than expected. TRUE says it has completed its network optimization program faster than targeted. As of 3Q24, it has completed 10.8k sites against its end-2024 target of 10k. Operations were solid. Mobile revenue (64% of total revenue) was Bt32.7bn, flat QoQ, but up 3.7% YoY on continued easing in pricing competition and higher tourism-related revenue. Blended ARPU was Bt211, up 1.9% QoQ and 5.5% YoY, driven by the prepaid segment which is the key indicator for pricing competition. Mobile subs dropped to 49.3mn from 50.5mn in 3Q24, impacted by a focus on quality acquisitions and collaboration with law enforcement on scam prevention. Revenue for the FBB business (13% of total revenue) was Bt6.4bn, up 1.5% QoQ and 7.5% YoY on higher ARPU (+0.7% QoQ and +9.8% YoY) and rising subs (+23k).

Catalyst#2: EBITDA growth to exceed its 2024 target. As 9M24 core profit reached 92% of our previous full-year forecast, we believe we were overly conservative and thus raised our 2024F core profit estimate by 27.6% to Bt8.1bn after cutting our cost of service assumption by 1.8% and adjusting tax expense to reflect 9M24 numbers. We now expect its EBITDA to grow 15.1%, ahead of guidance of 12-14%. We also see potential for consensus earnings upgrades after seeing these solid numbers in 3Q24.

Catalyst#3: Expect 4Q24F core profit to be stronger YoY. We expect TRUE to report YoY stronger core profit in 4Q24F, supported by ongoing cost reduction and less pricing competition. On a QoQ basis, we conservatively expect a slip in core profit as 4Q is normally high season for marketing. However, if it manages costs better than we expect, there could be further upside to our forecast.

Action & recommendation. We are impressed with its 3Q24 results and expect share price to react positively. Despite a strong share price rally YTD, we believe the stronger earnings outlook will continue to drive share price further. We reiterate our view that any share price correction is a buying opportunity.

Risks and concerns. A weak economic recovery that 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).