Cost Optimization And 5G Expansion Will Strengthen Future Operational Efficiency

Key Takeaways

• Integration of high-value services and proactive customer retention efforts suggest potential revenue growth and improved net margins.
  
• Environmental resilience and cost optimization measures are likely to enhance operational efficiency and positively impact earnings.
  
• Macroeconomic risks, natural disruptions, CapEx uncertainty, integration challenges, and competitive pressures on pricing and margins could hinder Advanced Info Service’s revenue and earnings growth.

Catalysts

Together its subsidiaries, provides mobile network, fixed broadband, and digital services primarily in Thailand.

• The integration of high-value services like cloud services, coupled with large projects boosting cloud revenue, indicates future growth in the enterprise non-mobile segment. This is likely to positively impact revenue.
  
• The company's proactive steps in maintaining operations despite environmental challenges, such as flooding, could enhance operational resilience and potentially improve net margins by reducing unexpected costs.
  
• Initiatives such as the launch of Green Bonds and Green Loans for 5G network expansion in rural areas can drive future revenue growth by increasing their customer base and expanding service offerings.
  
• Focus on customer retention through value-added services and proactive retention programs, along with upselling higher-value broadband packages, suggests the potential for increased revenues and improved net margins.
  
• Cost optimization efforts, including rental negotiations and improved energy efficiency, are expected to lead to a reduction in operating expenses, thereby having a positive impact on net margins and earnings.

Advanced Info Service Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Advanced Info Service's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.8% today to 19.0% in 3 years time.
• Analysts expect earnings to reach THB 44.2 billion (and earnings per share of THB 14.96) by about December 2027, up from THB 32.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting THB 49.0 billion in earnings, and the most bearish expecting THB 36.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.5x on those 2027 earnings, down from 26.2x today. This future PE is greater than the current PE for the TH Wireless Telecom industry at 11.5x.
• Analysts expect the number of shares outstanding to decline by 0.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.88%, as per the Simply Wall St company report.

Advanced Info Service Future Earnings Per Share Growth

Risks

• The lower GDP forecast, weaker consumer sentiment, and slower private investment in Thailand present macroeconomic risks that could impede Advanced Info Service’s revenue growth.
  
• Recent flooding in Thailand’s northern and northeastern provinces might disrupt consumer activity and network operations, impacting short-term revenue and increasing operational costs.
  
• There is uncertainty around capital expenditure strategy, particularly regarding the CapEx guidance and potential delays in infrastructure investments, which could affect future earnings growth.
  
• The integration challenges and previous losses associated with 3BB could strain financials, leading to potential impacts on net margins if the synergies do not fully materialize over the expected timeline.
  
• Competitive pressures in mobile data plans, especially concerning pricing strategies to optimize device subsidies and ARPU, could limit margin expansion if consumer demand shifts unfavorably.

Valuation

• The analysts have a consensus price target of THB 300.7 for Advanced Info Service based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be THB 232.3 billion, earnings will come to THB 44.2 billion, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 6.9%.
• Given the current share price of THB 289.0, the analyst's price target of THB 300.7 is 3.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.