Lower-than-expected normalised profit for 2002

TT&T reported a 2002 net profit of Bt569mn, significantly higher than our forecast of Bt478mn and a sharp turnaround from its Bt466mn loss in 2001. Its better-than-expected performance, however, was mainly due to unrealised forex gains of Bt447mn and a one-off accounting gains of Bt118.6mn. Excluding these, TT&T posted normalised profit of Bt3mn. Although this was lower than our forecast of Bt28mn, it marked the company's first normalised profit since the 1997 economic crisis.

TT&T's operational performance improved slightly thanks to a 1.7% increase in net additional subscribers to 1.2mn. Extra revenue from new value-added services and products, such as Caller ID, T-box and T-net, helped offset a 3.4% decrease in ARPU to Bt575 per month last year. As a result, TT&T's revenue increased 5.1% to Bt7.2bn in 2002 while EBITDA margins widened from 28.7% to 33.3%, respectively.

We recently revised up TT&T’s 2003 revenue by 10% to Bt7.4bn and 2004 revenue by 15% to Bt7.5bn, given the promising potential of the data communication market. At present, DCN revenue represents just 3.5% of total revenue, up from 1.4% in 2001. We expect DCN revenue to rise to 20-30% of total revenue this year, helping offset further declines in ARPU. We have also lifted our estimates for TT&T’s normalised profit to Bt86mn in 2003 and Bt38mn in 2004, mainly from effective cost control measures and the introduction of new services.

However, we still have a negative view on TT&T's fixed-line business given that the company is limited to only 1.5mn numbers. Moreover, intense competition from mobile phone operators and heavily-discounted IP services will sustain the pressure on margins. Excluding any possible benefits from concession conversion, we value TT&T at Bt2.2 per share based on our DCF model. The stock is now at a 10% premium to our fair value estimate as well as trading at an expensive 2003 EV/EBITDA of 7.89x. Accordingly, we are maintaining our TAKE PROFIT recommendation on TT&T.