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True Bets Big On 4G

Thai telco and media conglomerate True Corp is betting on a ~Bt40 billion (US$1.1 billion) investment in 4G to shore up future business and expand market share.

Thailand’s US$7 billion mobile market is increasingly being driven by data consumption, which will account for ~45% of revenue this year versus less than 25% three years ago.

True had 18.5 million mobile subs at end-Sept. 2015, with the business contributing close to 65% of company turnover.

Last week, True and rival telco AIS emerged as the winners of two 18-year 15 MHz concessions in Thailand's long-awaited 1800 mobile 4G auction.

True won at Bt39.8 billion, while AIS’s bid was Bt41.0 billion.

True’s bet, however, will be a big drain on near-term earnings and its balance sheet, something that will concern investors.

The company will amortize its Bt40 billion bet on 4G at Bt2.6 billion per year, which will easily account for 65% of expected earnings next year.

The investment will also place pressure on True’s balance sheet, as its net debt to Ebitda ratio trends to above 3.5x from a current 2x. True may look to raise new capital to stabilize its financial structure.

Auctions for 900 MHz are coming up shortly with AIS and Dtac likely to be the most aggressive bidders, possibly along with Jasmine, which lost out along with Dtac in the 1800 MHz auction.

Mixed signals from earnings

True’s latest earnings, announced Nov. 13, were relatively robust with 9M 2015 Ebitda expanding 10% Y/Y to Bt16.1 billion. Network and marketing expenses, however, hurt margins.

True’s pay-TV business TrueVisions, which accounts for 11% of total sales, experienced a boost in subscriber growth this year on the back of aggressive bundling of basic packaged channel services with high-speed broadband.

Pay-TV revenue growth (up almost 20% Y/Y in the Sept. 2015 quarter to Bt3.4 billion) has largely been driven by the growth of music entertainment and ad sales.

Ad revenue was up 42% to Bt591 million, driven by the growing popularity of DTT channel True4U, while music, entertainment and other fees were up 65% to Bt929 million.

Subscription and installation revenue meanwhile was flat in Q3, at ~B1.87 billion.

True’s aggressive bundling to cater to the mass segment, with basic packs full of its own pay channels (which number 40) and those of various DTT broadcasters, has helped partially offset rampant local competition and macro volatility.

At the same time, TrueVisions sports content is likely to benefit from rights to popular soccer leagues including Thai Premier League, Uefa Champions League and Spain’s La Liga, the latter licensed from BeIn, which True will likely work with to carry EPL football.

At end-September, True’s bundled basic pay services had grown from 547,000 a year ago to 958,000 subs, while its premium base has further eroded, from 313,000 subs a year ago to 295,000.

The company had a total of 2.92 million multichannel TV subs at end-Sept. 2015, including 1.17 free-to-air box customers and 0.5 million Freeview subs.

Monthly Arpu continues to soften, reaching Bt550 for 9M and Bt501 in Q3 versus almost B700 a year ago.

Pay-TV earnings remain soft. While TrueVisions continues to grow at the Ebitda level, the company’s operating losses widened to Bt580 million from Bt385 million a year ago.



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