OTT Disruption And Thailand's Demographics Will Compress Margins

Key Takeaways

• Structural revenue challenges arise from digital disruption, demographic shifts, and intensified competition, limiting growth and pressuring legacy and high-margin business lines.
  
• High leverage, integration risks from the DTAC merger, and rising regulatory demands constrain profitability, create uncertainty, and threaten future earnings stability.
  
• Operational efficiencies, digital innovation, and prudent financial management are driving margin expansion, stronger cash flow, and higher potential dividends, supporting long-term share price growth.

Catalysts

Provides telecommunications and value-added services in Thailand.

• Intensifying digital disruption from over-the-top (OTT) platforms continues to erode core legacy revenue streams such as voice and SMS, while competitive pressure from global streaming and messaging giants puts the company's high-margin TV and content business at risk, likely resulting in long-term stagnation or decline in overall revenue growth.
  
• Demographic headwinds due to Thailand's aging and shrinking population will structurally cap subscriber growth across both mobile and broadband, constraining opportunities for scale and placing a ceiling on ARPU expansion, thereby dampening future revenue potential.
  
• Persistently high leverage and ongoing large-scale capital requirements, including looming 5G spectrum auctions with uncertain pricing, are expected to elevate both interest expense and depreciation, further compressing net margins and keeping net profit under pressure for years to come.
  
• The anticipated realization of synergies from the DTAC merger carries significant integration risk, and any failure to deliver targeted cost savings or revenue uplift-combined with ongoing modernization write-offs-will weigh on EBITDA margins and potentially lead to further impairment-related hits to earnings.
  
• Escalating regulatory demands around carbon emissions, e-waste, and data privacy are likely to translate into rising compliance and operational costs, risking both brand reputation and profitability, while any regulatory shifts on spectrum pricing or industry liberalization could severely impact earnings visibility and margin stability.

True Corporation Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on True Corporation compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming True Corporation's revenue will decrease by 2.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -4.2% today to 10.6% in 3 years time.
• The bearish analysts expect earnings to reach THB 20.2 billion (and earnings per share of THB 0.58) by about June 2028, up from THB -8.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 23.2x on those 2028 earnings, up from -47.2x today. This future PE is greater than the current PE for the TH Telecom industry at 17.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.31%, as per the Simply Wall St company report.

True Corporation Future Earnings Per Share Growth

Risks

• True Corporation's sustained 8 consecutive quarters of EBITDA growth, rising ARPU across prepaid and postpaid segments, and improving operating leverage demonstrate robust top-line and margin expansion prospects, which could result in net earnings and share price growth.
  
• The company is consistently outperforming guidance for EBITDA and leverage reduction, with net debt to EBITDA falling faster than planned and free cash flow generation remaining strong, supporting ongoing deleveraging and the potential for higher dividends, both of which typically favor higher share valuations.
  
• Realized and accelerated synergies from the DTAC merger-including organization modernization, procurement savings, and network consolidation-are driving both lower OpEx and improved EBITDA margins, which are guided to rise to 67% by 2027, signaling substantial profitability improvement.
  
• Strategic investments in 5G, AI, cloud, and digital lifestyle offerings are catalyzing new revenue streams in both consumer and enterprise segments, and the transformation to a converged digital ecosystem positions True to benefit from rising digital adoption and e-commerce trends, enhancing long-term revenue and customer lifetime value.
  
• Management's financial discipline, performance-driven culture, and a transparent approach to capital allocation and guidance indicate that ongoing margin improvement, capex rationalization, and higher payouts (targeting over 50% of consolidated net profit as dividends) could make True Corporation's shares more attractive over the long term, underpinning potential share price appreciation.

Valuation

• The assumed bearish price target for True Corporation is THB10.97, which represents two standard deviations below the consensus price target of THB14.74. This valuation is based on what can be assumed as the expectations of True Corporation's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of THB18.0, and the most bearish reporting a price target of just THB10.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be THB190.3 billion, earnings will come to THB20.2 billion, and it would be trading on a PE ratio of 23.2x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of THB11.7, the bearish analyst price target of THB10.97 is 6.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.