Brighter outlook for Thai telcos after a year of consolidation

AFTER a year marked by a spate of mergers and acquisitions in 2023, analysts expect Thailand’s remaining telecommunications players to emerge stronger and report better performance in the year ahead.

The number of mobile operators in Thailand shrank to two last year, following the completion of True Corporation’s merger with DTAC in March.

As at end-September 2023, True’s market share of mobile revenue in Thailand stood at 51.8 per cent, with the remainder held by Singtel associate Advanced Info Service (AIS).

On the fibre broadband front, the number of players was cut to three, following AIS’ acquisition of the entire stake in Triple T Broadband (3BB) in mid-November.

The combined AIS-3BB entity now holds a 45.3 per cent market share of fibre broadband in Thailand, while True holds a 36.6 per cent market share and National Telecom holds the remaining 18.1 per cent.

As a result of the market consolidation and post-merger cost-cutting by True, Maybank analyst Wasu Mattanapotchanart expects core profit for the Thai telcos to grow by 29 per cent year on year in 2024.

He noted that mobile operators have already made moves to better monetise data by reducing the amount of data bundled with prepaid plans. They also raised the price of voice calls to one baht (S$0.038) per minute in February last year, when they were previously free.

In the postpaid market, Wasu noted that cheaper plans have been ditched, while the price of unlimited data plans has also been raised.

Similarly, Phillip Securities Thailand head of research Teerada Charnyingyong observed that the market dynamics of the sector have improved.

“We are likely to see the telecom operators attempt to terminate budget packages, with a focus shifting to enterprise customers or the ecosystem to boost average revenue per user (ARPUs),” she said.

Teerada noted that AIS saw a decline of 1.7 million subscribers in two quarters after it terminated budget packages, while True added 913,000 subscribers between the second and third quarters of 2023.

Still, she anticipates that the blended ARPUs for both companies will continue to rise.

Fighting for market dominance

The way Citi analysts Arthur Pineda and Luis Hilado see it, the AIS acquisition of 3BB is a strategic move as it seeks to defend its mobile market share against True.

In a November report, Citi reiterated its “buy” call on AIS and increased its target price to 280 baht, from 260 baht previously. Shares of AIS closed at 216 baht on Monday (Jan 22).

“(The acquisition) places AIS in a good position to defend its mobile business against churn by offering more bundled products which help reduce churn,” the analysts said.

They noted that the company’s expected net profit after tax in FY23 and FY24 could fall by up to 3 per cent to reflect the added leverage that AIS took on to acquire both 3BB and a 19 per cent stake in Jasmine Broadband Internet Infrastructure Fund.

Still, the deal is expected to be earnings accretive from FY25 as AIS “harmonises and rightsizes cost elements and benefits from tax-loss carry forwards from 3BB”, they said.

Furthermore, the Citi analysts noted that an enlarged platform is beneficial to growing broadband subscriptions, as seen in the near doubling of Telkomsel’s quarterly broadband after the Indonesian telco acquired fibre player Indihome.

“Broadband remains a growth frontier with estimated household penetration at about 55 per cent,” they said.

If the telcos lower their broadband ARPUs to about 400 baht, this could bring in another 4.6 million customers, the analysts said. This could then translate into an additional 22 billion baht in annual revenue for the industry, excluding any potential upselling to wealthier customers.

Sector picks

Phillip’s Teerada noted that, unlike its rival True, AIS remains profitable.

While True will be attempting to reduce costs further to achieve profits, favourable results are only expected at end-2025.

“Furthermore, AIS has Gulf Energy Development as a business partner, which can help explore new business opportunities, particularly through AIS’ Internet services, such as cloud computing and data centres,” she said.

Singtel, AIS and Gulf Energy Development in February 2023 began construction of a new data centre located near Thailand’s capital Bangkok. It is expected to begin commercial operations in 2025 and offer 20 megawatts or more in capacity.

Maybank’s Wasu, however, is more bullish on True’s prospects.

He forecasts True’s core net loss to decline, while core profit growth at AIS is expected to decelerate.

Wasu also pointed out that True has more attractive valuations compared to its peers. True’s estimated enterprise value (EV) to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio for FY24 stood at 5.7 times, he said.

Meanwhile, EV-to-Ebitda ratios for AIS and Asean telcos stood at 7.6 times and 7.5 times, respectively.

“Given Telenor’s expertise in organisational restructuring, we expect True’s core net loss to narrow quarter on quarter every quarter from Q4 FY23 before becoming profitable in FY25E,” Wasu said, forecasting a 1.6 billion baht core profit for FY25.

Telenor held a 30.3 per cent ownership stake in True post-merger.

Longer-term catalysts

Analysts, meanwhile, also identified other potential long-term catalysts for the sector.

Teerada said that the Bank of Thailand is expected to begin selecting qualified candidates to run virtual banks, which could present new business opportunities for the telcos.

In July 2023, the central bank said that it will grant three virtual bank licences initially to applicants in 2024, with official business operations beginning in 2025.

AIS and state-owned Krungthai Bank announced in January last year that they plan to jointly invest in a virtual bank to serve both new and existing customers.

Ascend Group, which was spun off from True and is a subsidiary of Thailand’s Charoen Pokphand Group, has also indicated its interest in applying for a virtual banking licence with its TrueMoney e-wallet service.

Teerada said: “For both AIS and True, mobile income accounts for 30 to 63 per cent of their revenues. This traditional business is experiencing challenging growth.

“Accordingly, the operators are diversifying into virtual bank, cloud and data centre services. These new ventures, however, have yet to bear fruit.”