Calculated Expansion And ESG Initiatives Drive Profitability Amid 5G Revolution In Thailand

Key Takeaways

• True Corporation's network modernization and strategic digital expansion drive revenue growth and improve profitability with sustainable EBITDA growth.
  
• ESG initiatives and focus on high-value customers enhance investor confidence and long-term financial stability.
  
• Economic challenges and environmental impacts pose risks to revenue growth, while high leverage and declining sales indicate potential financial strains for True Corporation.

Catalysts

Provides telecommunications and value-added services in Thailand.

• True Corporation's extensive 5G network modernization, reaching 64% completion and expected to cover 92% of Thailand, is a catalyst for churn reduction and ARPU (Average Revenue Per User) improvement, positively impacting future revenue and earnings.
  
• Strategic expansion into digital solutions such as AI-powered IoT and cybersecurity is driving revenue growth, as evidenced by a notable 24% year-on-year revenue increase in cybersecurity, which could enhance overall net margins.
  
• Network cost savings from ongoing network modernization and efficiency measures have decreased OpEx by 9.9% year-on-year, indicating an improvement in net margins and sustainable EBITDA growth.
  
• The secured sustainability-linked loan and focus on ESG initiatives heighten investor confidence and financial health, potentially reducing interest expenses and thus improving net margins.
  
• True Corporation's strategic move towards high-value customers, shown by ARPU improvements and quality acquisitions, may stabilize revenue and drive profitability, aiding long-term earnings growth.

True Corporation Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming True Corporation's revenue will decrease by -2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -7.4% today to 6.0% in 3 years time.
• Analysts expect earnings to reach THB 13.4 billion (and earnings per share of THB 0.4) by about November 2027, up from THB -17.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting THB 21.7 billion in earnings, and the most bearish expecting THB 11.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 42.5x on those 2027 earnings, up from -23.5x today. This future PE is greater than the current PE for the TH Telecom industry at 19.1x.
• Analysts expect the number of shares outstanding to decline by 0.68% 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.

True Corporation Future Earnings Per Share Growth

Risks

• Prolonged flooding and economic challenges in Thailand could negatively impact True Corporation's recovery and revenue growth, particularly in the mobile and prepaid segments.
  
• The recent 17.4% decline in product sales could indicate issues with their sales strategy or market demand, which may affect future revenue streams.
  
• Mobile subscriber losses over three consecutive quarters, especially in postpaid services, might indicate issues in customer retention or acquisition, potentially affecting mobile service revenue.
  
• Cost optimization, such as reduced subsidies and network synergies, though beneficial short-term, may not be sustainable or sufficient to drive long-term growth, impacting net margins.
  
• High leverage, despite nominal improvement, combined with significant upcoming debt maturities, may strain financial resources or limit dividend distributions, affecting the company's earnings and shareholder value.

Valuation

• The analysts have a consensus price target of THB 13.83 for True Corporation based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of THB 18.0, and the most bearish reporting a price target of just THB 10.1.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be THB 222.9 billion, earnings will come to THB 13.4 billion, and it would be trading on a PE ratio of 42.5x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of THB 12.0, the analyst's price target of THB 13.83 is 13.2% higher.
  
• 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.