Telecom – Not time to exit the building

We remain positive on the sector and believe share prices could rise further despite the already substantial rise YTD. Compared to regional peers, current valuations are still lower in terms of EV/EBITDA – but EBITDA margin is higher and industry structure better thanks to fewer players. We do not feel the bonus from industry consolidation is over yet and thus expect higher ARPU. The upcoming spectrum auction in 2025 is not a real concern despite little information on bidding rules and in fact we see high chance of earnings upside after the auction from cost savings. TRUE is our top pick, but we also rate ADVANC as OUTPERFORM.

Valuation still attractive despite a strong rally. ADVANC and TRUE share prices have risen 20.3% and 121.8% YTD respectively, outperforming the SET by a large 17.5% and 119%. This begs the question: are current valuations demanding and should investors take some profit at this level? We believe the answer is “No”. We compare valuations in terms of EV/EBITDA for Thai telcos with reginal peers and this shows that ADVANC and TRUE are both still trading below peer average but have a superior EBITDA margin in 2024-2025. Additionally, industry structure is better in Thailand with just two key players vs 3-5 for other countries in the region.

Industry outlook good - and getting better. We believe the benefits of market consolidation will continue to emerge, with ARPU for both prepaid and postpaid rising further, supported by a better pricing structure especially for the prepaid segment, and higher 5G subs where ARPU uplift is still at ~10%. At the same time, this will be gradual. There is also room for FBB to grow further, driven by demand for higher quality broadband and on-top packages such as home solutions, where ARPU is generally above average.

Potential earnings upside from license auction in 2025. In 3Q25, three licenses will expire, all leased from NT: 850MHz (leased by TRUE for Bt2.5bn p.a.), 2100MHz (leased by ADVANC for Bt3.9bn p.a.) and 2300MHz (leased by TRUE for Bt4.5bn p.a.). Since we expect mild bidding competition, all operators should enjoy cost savings: Bt2bn for ADVANC and Bt6bn for TRUE, based on our estimates. Savings are higher for TRUE since it has stated that it will no longer need 850MHz (details in Figure 13). We believe this is not yet fully reflected in the share price because of the limited information on the bidding rules.

Prefer TRUE over ADVANC. Although we like both companies, we prefer TRUE over ADVANC due to cheaper valuation in terms of EV/EBITDA as well as stronger earnings growth in 3Q24F and 2025F. TRUE also has a slightly higher benefit from an interest rate cut at 0.7% for 2025F for every 25bps cut vs 0.4% for ADVANC. We roll our valuation base for both companies to 2025. This lifts TRUE’s DCF-based TP to Bt13.0 from Bt11.5 (7.9% WACC and 2% LTG) and ADVANC’s to Bt300 from Bt260 (6% WACC and 2% LTG).

Key risks. 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).