Date of Report: October 21, 2024
Broker Name: Maybank Securities (Thailand) PCL

Company Overview

True Corporation (TRUE) is a leading telecommunications company in Thailand. It recently merged with Total Access Communication (DTAC) on March 1, 2023, making it the largest player in the Thai telecom market. TRUE’s business includes mobile services, broadband internet, and digital content services. The merger has strengthened its market position, giving it a 51.7% mobile revenue market share as of 1Q24.

Strategic Initiatives and Recent Developments

• Successful Merger with DTAC: The merger of TRUE and DTAC has been a significant strategic move, creating a stronger entity with enhanced market presence. The merger has allowed TRUE to expand its customer base and leverage synergies to optimize operations.
• Focus on Synergy Benefits: The merger is expected to provide cost efficiencies and operational synergies. TRUE anticipates a lower EV/OpFCF ratio due to these synergies, which could drive higher profitability in the coming years. The company’s forecasted core profits for FY24 and FY25 are significantly higher than Bloomberg consensus estimates.
• Cost Optimization and Growth Strategy: TRUE has been able to lower its cost structure through better network integration and streamlined operations post-merger. This has helped improve its financial performance and market competitiveness.

Financial Performance

• Core Profit Growth Projections: TRUE’s new core profit estimates for FY24 and FY25 are 12% and 36% higher than consensus projections. This robust outlook is driven by strong quarterly earnings momentum and operational synergies from the DTAC merger.
• Expected Free Cash Flow to Firm (FCFF): TRUE anticipates substantial free cash flow growth, driven by efficient operations and cost savings. The FCFF is expected to rise from THB16.8 billion in FY24 to THB33.8 billion by FY26.
• EBITDA Margins: Post-merger, TRUE’s EBITDA margins have improved significantly. The company aims to maintain and further enhance these margins, reaching a forecasted 64.4% by FY26, reflecting the successful integration of DTAC’s operations.

Key Drivers and Risks

• Drivers:

  • Synergy Realization: The merger with DTAC is expected to generate significant cost savings and revenue growth. These synergies are a key driver for future profitability.
  • Market Leadership: With a 51.7% market share, TRUE holds a leading position in Thailand’s mobile market, which strengthens its negotiating power with suppliers and allows for better customer service capabilities.
  • Strong Earnings Momentum: TRUE’s quarterly earnings have shown strong growth, and the trend is expected to continue, driven by improved cost management and increased market share.

• Risks:

  • Integration Challenges: Mergers of this scale can face integration issues, which may impact operational efficiency. Ensuring a smooth transition and integration of DTAC’s assets and networks is critical.
  • Economic Headwinds: Potential economic downturns could affect consumer spending on telecommunications services, impacting TRUE’s revenue growth.

Valuation and Investment Recommendation

• Current Stock Price: THB11.90
• Target Price: THB12.80 (BUY)
• Valuation Methodology: Maybank’s target price for TRUE is based on a Discounted Cash Flow (DCF) model using a WACC of 7.6% and a terminal growth rate of 2%. This implies an FY25E EV/EBITDA of 8.0x.
• Positive Outlook Compared to Peers: Analysts have a positive outlook on TRUE due to its lower FY24-26E EV/EBITDA ratios compared to competitors like Advanced Info Service (ADVANC). The lower valuation, coupled with strong quarterly earnings, makes TRUE an attractive investment opportunity.

ESG (Environmental, Social, and Governance) Focus

• Sustainability and Digital Inclusion: TRUE is committed to sustainable business practices and digital inclusion initiatives. It has been working on expanding network coverage, enhancing digital services, and promoting responsible corporate practices.
• Focus on Renewable Energy and Efficient Operations: TRUE is exploring ways to incorporate more renewable energy sources into its operations. This aligns with the company’s broader ESG goals and helps in reducing operational costs over the long term.

Competitive Advantage

• Lower EV/EBITDA and EV/OpFCF Ratios: TRUE’s valuations are relatively lower compared to its main competitor, ADVANC. This reflects the market’s anticipation of cost efficiencies and stronger profitability. Analysts also expect consensus earnings forecasts to be revised upward, highlighting confidence in TRUE’s performance.
• Focus on High-Growth Segments: TRUE continues to invest in high-growth areas such as digital content, broadband, and 5G services. This helps diversify its revenue streams and reduce dependency on traditional mobile services.

Conclusion

True Corporation has emerged as a dominant force in the Thai telecom industry following its merger with DTAC. The company’s focus on cost efficiencies, synergy realization, and strategic investments in high-growth segments has positioned it well for future growth. With strong earnings momentum and lower valuation metrics compared to peers, TRUE presents a compelling investment case, earning a “BUY” recommendation from analysts.