Worst performer but solid fundamentals

Telecoms has struggled with a slump in the global market and an uncertain domestic regulatory environment

Mongkol Jullayothin

The clouds over the communications sector, the worst performer this year on the Stock Exchange of Thailand with an average total shareholder return of -24.2%, are expected to lift slightly by December.

The sector has been weighed down by external factors, including the slump in the global telecoms business and the uncertain regulatory environment at home. But fundamentals remain solid, with the outlook for the mobile and fixed-line businesses generally positive, according to analysts.

The sector's bellwether, accounting for 56% of its market capitalisation, cellular leader Advanced Info Service Plc, delivered a return of -10% but has a five-year record of 12% and has produced returns of 23% over 10 years.

All 10 companies in the sector were in negative territory in the 12 months to June 30, with AIS being the best of a bad lot. Its parent, Shin Corporation, was next best at -18%, while TelecomAsia brought up the rear with a -64% return.

If it is any consolation for investors, the capital-intensive sector is decidedly a long-term play. The 10-year sector average return is the best on the SET at 16.6%, but five- and three-year returns are in the red.

AIS reported a net profit of 4.734 billion baht in the first half, compared with 4.585 billion in the same period last year. The result disappointed and surprised the market, since AIS had seen its subscriber base nearly double over the past year.

But president Somprasong Boonyachai said the company took a one-time charge for a reserve against deposits of 3,000 baht per line, which the company was now rebating, since the new telecom services law prohibits collection of deposits.

Mr Somprasong said performance would be back on track in the second half, while the company was on course to reach its target of 11 million customers by year-end, compared with 8.4 million as of July.

Pisit Ngamvijitvong, the analyst from Kim Eng securities, said a big concern in the sector was declining average revenue per user, and that operators needed to offset this decline by finding new revenue sources.

``The strong competition at present is considered to benefit all existing operators as market growth has been higher than the reduction in handset margins,'' said Mr Pisut.

The two listed fixed-line operators had encouraging first-half results and say their business plans going forward are now clearer.

The provincial fixed-line operator TT&T reported a net profit of 1.081 billion baht, against a loss of 424 million in the first half of 2001. The bulk of the earnings represented gains from foreign exchange and debt restructuring, though the company did have an operating profit, its first, of 50 million baht.

Long-distance service, traditionally the source of more than 50% of the company's revenue, has taken a beating because of competition from cheaper mobile rates, and now accounts for only 20% of revenue. However, this was being offset by higher revenue from fixed-line calls to mobile networks, according to Prasitchai Kritsanayunyong, TT&T's head of finance and accounting.

As well, said Mr Prasitchai, the company was seeking new high-potential businesses including data communications and public-phone service, and focusing more on high-usage subscribers, especially corporate users.

Mr Pisut of Kim Eng said TT&T's biggest challenge would be finding a strategic partner to inject more than five billion baht in capital. As many as 10 companies have been approached but they are not making any commitments. The main obstacle may be the unclear regulatory environment.

Specifically, TT&T has sold all but 200,000 of its 1.5 million lines and wants to expand its network. But it will need permission from the national telecommunications Commission, which has yet to be formed.

At present there is no regulator as the two state telecom agencies, which formerly played this role, are in the process of privatisation.

Bangkok fixed-line operator TelecomAsia saw improving prospects for its business, given the better economic situation, according to president Supachai Chearavanont. While mobile phones were the main threat in terms of voice service, he said TA would focus more on broadband technology for data services and Internet applications for corporate and individual users.

The advantage of TA, said Mr Pisut of Kim Eng, was its range of products and services and the improving operation of its subsidiaries.

TA reported a net profit in the second quarter of 1.011 billion baht, but its first-half result was a net loss of 1.371 billion baht, on a 20% increase in revenue, compared with a loss of 5.242 billion in the same period last year.

Mr Supachai said that a recapitalisation plan worth 6.2 billion baht would give TA more financial flexibility and funds to expand its mobile arm, TA Orange, with no need to raise capital further in the near future. _Mongkol Jullayothin

Back to index page