1

07 Nov 2014

Opp Day: ADVANC

Advanced Info Service PCL (ADVANC)

Key takeaways from Opportunity Day on 6 November, 2014

ADVANC reported its 3Q14 net profit at Bt8.96bn, up 6% QoQ and 7% YoY thanks to regulatory cost

savings and non-voice revenue growth. This was in line with our expectation and Bloomberg consensus.

The company continues to focus on fixed-mobile convergence, namely being a “digital life service

provider” in line with the newly-launched digital economy policy of the government. Fixed broadband will

be another key business for the company in the future.

We expect ADVANC’s 4Q14 earnings to grow further as it is the high season and consumer confidence

has been improving. We maintain our BUY recommendation with a target price of Bt253.00.

Unit: Btmn 3Q13 2Q14 3Q14 %QoQ %YoY

Voice revenue 18,810 16,890 15,710 -7.0% -16.5%

Non-voice revenue 8,205 10,488 11,388 8.6% 38.8%

International roaming 622 554 537 -3.1% -13.7%

Others 1,310 1,671 1,746 4.5% 33.3%

Service revenue ex. IC 29,103 28,967 29,604 2.2% 1.7%

Net IC 132 109 163 49.5% 23.5%

Service revenue plus net IC 29,235 29,076 29,767 2.4% 1.8%

Regulatory fee 6,217 5,394 4,589 -14.9% -26.2%

Depreciation & Amortization 4,338 4,550 4,819 5.9% 11.1%

Network OPEX 2,200 2,065 2,354 14.0% 7.0%

Other costs 1581 1594 1623 1.8% 2.7%

Total cost of service ex. IC 14,336 13,603 13,385 -1.6% -6.6%

Service gross profit ex. IC 14,767 15,364 16,219 5.6% 9.8%

Sales revenue 3,687 5,024 4,208 -16.2% 14.1%

Cost of sales 3,483 5,045 4,291 -14.9% 23.2%

Sales gross profit 204 (21) (83) N/M N/M

SG&A 4,066 5,144 4,643 -9.7% 14.2%

Operating profit 10,880 10,945 11,434 4.5% 5.1%

Net profits 8,341 8,475 8,955 5.7% 7.4%

3Q14 net profits improved both QoQ and YoY

ADVANC reported its 3Q14 net profit at Bt8.96bn, up 6% QoQ from Bt8.48bn in 2Q14 and 7% YoY from Bt8.34bn

in 3Q13.

The company’s service revenue, excluding interconnection charges (IC), grew by Bt0.4bn or 1.5% YoY but slightly

declined Bt0.2bn or 0.7% QoQ. Voice revenue dropped 7% QoQ and 17% YoY. However, non-voice revenue

surged 9% QoQ and 39% YoY, which to a great extent offset the decline in voice revenue.

Regulatory costs declined a considerable 15% QoQ and 26% YoY thanks to subscriber migration to 2.1 GHz

spectrum under the licensing regime and 3G smartphone promotions. Its 3G-2.1GHz subscribers continued to

increase to 38.7mn, representing 88% of ADVANC’s total subscribers, ahead of our FY14 forecast of 85%.

Depreciation & amortization plus network operating expenses grew but far less than regulatory cost savings.

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07 Nov 2014

Opp Day: ADVANC

ADVANC as “digital life service provider”:

The company has already built 20,500 base stations, surpassing our full-year target of 20,000 base stations. The

base station building will continue. With the accelerating data uptake, ADVANC continued to install more small

cells in dense areas along with its own extensive Wi-Fi hotspots which have already reached 22,000 access points,

with the year-end target of 28,000 access points.

ADVANC is expanding its horizons to become an integrated digital life service provider – mobile, fixed broadband,

and digital content. The company is entering into the fixed broadband business (FBB) early next year with a budget

of Bt1.0bn and targets to acquire 80,000 subscribers in Bangkok and major cities in the first year. This capital

spending is relatively small because ADVANC intends to launch a pilot project since it has less expertise than

existing players. In the long term, its FBB should be a big project and ADVANC aims to be a leading player in the

market. This is because digital content has to be supported by fixed broadband and mobile services. Moreover,

doing FBB by itself helps ADVANC to have enough FBB margin to offer discounts for bundled packages.

We expect ADVANC’s 4Q14 earnings to grow from high season and better consumer confidence. We maintain our

BUY recommendation with a target price of Bt253.00.

As ADVANC sets its full year service revenue growth guidance at 1-2% YoY, 4Q14 should grow at least 5% QoQ. We

believe the company will be able to generate revenue growth from high season and better consumer confidence.

We maintain our BUY recommendation with a target price of Bt253.00.

Broadband Internet

Bt1bn capex for the first year

Using FTTH and VDSL, better than ADSL

Targets 80,000 subs in first year

Support “always connected” behavior

Going on building fiber optics nationwide

Strong demand

Digital Content e.g.

Banking

Bookstore

Customizing mobile package

TV programmes

3G-2.1 GHz Strong position

4G 3Q15 auction expected

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07 Nov 2014

Opp Day: ADVANC

Other issues for 3Q14

ADVANC gained 1.4% more market share, reflecting its competitiveness over peers.

Its number of postpaid subscribers grew 3% QoQ while prepaid subscribers grew 2% YoY.

Mobile data users increased to 42% of total subscribers from 40% in 2Q14.

Data usage grew to 1400 Megabytes per subscribers from 600 Megabytes.

Even though ADVANC has limited bandwidth of 15 MHz, major data growth is in the scope of social networks, e.g.

Facebook, Line, etc. In other words, data consuming growth rate is manageable.

ADVANC expects the new spectrum auction to be within 3Q15. This will be pushed by the government’s digital

economy policy and the incentive to obtain more lump-sum revenue for fiscal stimuli without collecting more taxes.

ADVANC still has not revealed its plan for if the auction is delayed further. We think it may cooperate with state-

owned telecom operators to rent space on their networks.

There should be little worry about additional migration of high-end users who need 4G services to other operators’

4G networks because the migration has already happened before when the other operators launched their 4G

service. In other words, there should be minimal churn rate. 4G adoption rates for developed countries are still low

and the company thinks that Thailand’s adoption rate is unlikely to exceed that of developed countries.

ADVANC is not that concerned about 4G claiming that the 4G market segment is still small.

The company still uses 3BB Wi-Fi service to providing broadband service to subscribers since 3BB has hotspots

nationwide.

ADVANC still has a project with DTAC to mutually build 3,000 base stations for sharing. The progress is still slow

(a few hundred stations have been built). If this project materializes, their costs should be reduced. Currently, we

think ADVANC intends to build a major number of base stations on its own to have an advantage over competitors.

Thailand Research Department Narudon Rusme, CFA, CISA

License, No. 029737 Tel: 02 680 5056

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07 Nov 2014

Opp Day: ADVANC

ADVANC BTS GRAMMY MCOT PTT SC SSI TMBAOT CIMBT HANA MINT PTTEP SCB SSSC TNITYASIMAR CK HEMRAJ NKI PTTGC SCC SVI TOPBAFS CPF ICC NOBLE QH SCSMG SYMC TRCBANPU CPN INTUCH PAP RATCH SE-ED TCAP TRUEBAY CSL IRPC PG ROBINS SIM THAI TTWBBL DRT IVL PHOL RS SIS THCOM TVOBCP DTAC KBANK PR S&J SITHAI THRE UVBECL EASTW KKP PRANDA SAMART SNC TIP VGIBKI EGCO KTB PS SAMTEL SPALI TISCO WACOALBROOK ERW LPN PSL SAT SPI TKT

2S ASP CHOW GBX JUBILE LRH NMG PPP SINGER TCP TOG UACACAP AYUD CM GC KBS LST NSI PREB SIRI TF TPC UMIAF BEC CNT GFPT KCE MACO NWR PRG SKR TFD TPCORP UMSAHC BFIT CPALL GL KGI MAJOR OCC PT SMT TFI TPIPL UPAIT BH CSC GLOW KKC MAKRO OFM PYLON SNP THANA TRT UPOICAKP BIGC DCC GOLD KSL MBK OGC QTC SPCG THANI TRU UTAMANAH BJC DELTA GSTEL KWC MBKET OISHI RASA SPPT THIP TSC VIBHAAMARIN BLA DTC GUNKUL L&E MFC PB SABINA SSF TICON TSTE VIHAMATA BMCL ECL HMPRO LANNA MFEC PDI SAMCO STANLY TIPCO TSTH VNGAP BWG EE HTC LH MODERN PE SCCC STEC TK TTA VNTAPCO CCET EIC IFEC LHBANK MTI PF SCG SUC TLUXE TTCL YUASAAPCS CENTEL ESSO INET LHK NBC PJW SEAFCO SUSCO TMILL TUF ZMICOASIA CFRESH FE ITD LIVE NCH PM SFP SYNTEC TMT TWFPASK CGS FORTH JAS LOXLEY NINE PPM SIAM TASCO TNL TYM

A ASIA CITY EASON HTECH KASET MJD PL SF SVOA TMI UOBKHAAV BAT-3K CMR EMC HYDRO KC MK POST SGP SWC TNDT UPFAEC BCH CNS EPCO IFS KCAR MOONG PRECHA SIMAT SYNEX TNPC UWCAEONTS BEAUTY CPL F&D IHL KDH MPIC PRIN SLC TBSP TOPP VAROAFC BGT CRANE FNS ILING KTC MSC Q-CON SMIT TCCC TPAC VTEAGE BLAND CSP FOCUS INOX KWH NC QLT SMK TEAM TPP WAVEAH BOL CSR FPI IRC LALIN NIPPON RCI SOLAR TGCI TR WGAI BROCK CTW FSS IRCP LEE NNCL RCL SPC TIC TTI WINAJ BSBM DEMCO GENCO IT MATCH NTV ROJNA SPG TIES TVD WORKAKR CHARAN DNA GFM JMART MATI OSK RPC SRICHA TIW TVIALUCON CHUO DRACO GJS JMT MBAX PAE SCBLIF SSC TKS TWZANAN CI EA GLOBAL JTS MDX PATO SCP STA TMC UBISARIP CIG EARTH HFT JUTHA PRINC PICO SENA SUPER TMD UEC

Corporate Governance Report disclaimer

The disclosure of the survey result of the Thai Institute of Directors

Association (“IOD”) regarding corporate governance is made pursuant to

the policy of the Office of the Securities and Exchange Commission. The

survey of the IOD is based on the information of a company listed on the

Stock Exchange of Thailand and the Market for Alternative Investment

disclosed to the public and able to be accessed by a general public investor.

The result, therefore, is from the perspective of a third party. It is not an

evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance

Report of Thai Listed Companies. As a result, the survey result may be

changed after that date, Asia wealth Securities Company Limited does not

conform nor certify the accuracy of such survey result.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.

Score Range Number of Logo Description

90 - 100 Excellent

80 - 89 Very Good

70 - 79 Good

60 - 69 Satisfactory

50 - 59 Pass

Below 50 No logo given N/A

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07 Nov 2014

Opp Day: ADVANC

Branch Address Phone Fax

Head Office 540 Floor 7,14,17 , Mercury Tower, Ploenchit Road, Lumphini,

Pathumwan Bangkok 10330

02-680-5000 02-680-5111

Silom 191 Silom Complex Building,21st Floor Room 2,3-1 Silom Rd., Silom,

Bangrak, Bangkok, 10500 Thailand

02-630-3500 02-630-3530-1

Asok 159 Sermmitr Tower, 17th FL. Room No.1703, Sukhumvit 21 Road,

Klong Toey Nua, Wattana, Bangkok 10110

02-261-1314-21 02-261-1328

Pinklao

7/3 Central Plaza Pinklao Office Building Tower B, 16th Flr., Room

No.1605-1606 Baromrajachonnanee Road, Arunamarin,

Bangkoknoi, Bangkok 10700

02-884-7333 02-884-7357,

02-884-7367

Chaengwattana

99/99 Moo 2 Central Plaza Chaengwattana Office Tower, 22nd Flr.,

Room 2204 Chaengwattana Road, Bang Talad, Pakkred, Nonthaburi

11120

02-119-2300 02-8353006

Chaengwattana 2

9/99 Moo 2 Central Plaza Chaengwattana Office Tower, 22nd Flr.,

Room 2203 Chaengwattana Road, Bang Talad, Pakkred,

Nonthaburi 11120

02-119-2388 02-119-2399

Mega Bangna 39 Moo6 Megabangna, 1st Flr., Room 1632/7 Bangna-Trad Road,

Bangkaew Bangplee, Samutprakarn 10540

02-106-7345 02-105-2070

Rayong 356/18 Sukhumvit Road, Nuen-Phra Sub District, Muang District,

Rayong Province 21000

038-808200 038-807200

Khonkaen 26/9 Srijanmai Road, Tamboonnaimuang, Khon Khaen

40000

043-334-700 043-334-799

Chonburi 44 Vachiraprakarn Road, Bangplasoi, Muang Chonburi, Chonburi

20000

038-274-533 038-275-168

Chaseongsao

233-233/2 Moo2 1st Flr., Sukprayoon Road, Na Meung Sub-District,

Meung District, Chachoengsao 24000

038-981-587 038-981-591