Brief Thailand: AIS Growth Has Been Slowing as DTAC Returns to the Scene. 2019 Outlook Uncertain. and more

In this briefing:

1. AIS Growth Has Been Slowing as DTAC Returns to the Scene. 2019 Outlook Uncertain.
2. Delta’s Less-Than-Straightforward Tender Offer

1. AIS Growth Has Been Slowing as DTAC Returns to the Scene. 2019 Outlook Uncertain.

We met AIS (ADVANC TB) earlier this week at their Analyst Day in Bangkok. The recent results confirm our concerns over market growth slowing, with service revenue flat YoY. The guided 4-6% growth for 2019 may be difficult to achieve. On the mobile side, AIS is feeling competitive pressure from a resurgent DTAC (DTAC TB) and continuing gains from TRUE (TRUE TB) . While “hostilities” have eased recently (less aggressive price offers), we remain wary of the outlook for 2019. On the fixed side, AIS is making slow progress and we continue to think M&A is warranted.

There was a fair amount of discussion around 5G at the meeting, but this looks like a long term issue for AIS. Thailand has never been in the forefront on telecom technology upgrades in the past and there is plenty to do with 4G and fixed broadband still. 

Chris Hoare remains cautious on AIS in the current slowing environment, and ahead of delayed elections. Earnings forecasts have edged lower recently and that is translating to lower dividends (a 70% payout ratio to be retained for now). We remain at Neutral with a target price of THB187.

2. Delta’s Less-Than-Straightforward Tender Offer

On 1st August 2018, Delta Electronics Thai (DELTA TB) (“DELTA”) announced that Delta Electronics International (Singapore) (a wholly-owned subsidiary of Delta Electronics (2308 TT) “DEISG”) had made a conditional voluntary tender offer to acquire the remaining 70.97% stake in DELTA it does not own at Bt71/share, a 1.79% premium to last close (28% above its recent low), in a deal worth potentially up to US$2.1bn.

On Wednesday, DELTA announced that DEISG has successfully accomplished the conditions precedent requirements, that of the antitrust approvals being granted by authorities in US, Europe and China.

The transaction will now move to a tender offer, which is expected to be open for acceptances at the beginning of next month with the consideration potentially paid the second week of April.

But there are a number of unknowns to the tender offer:

• Will there be a maximum number of shares to be acquired, therefore shares tendered could be subject to possible pro-ration?
• Is it DEISG’s intention to delist DELTA?
• Will the full year dividend be netted, or not, from the Bt71/share offer?
• Will the indicative timetable be delayed, especially to factor in the FY18 dividend?

Currently trading at a gross/annualised spread (assuming 12 April payment and no dividend) of 0.4/1.4%, or 5%/22% if including a Bt3.30 FY18 dividend and mid-May payment, factoring in a one-month delay in the tender offer. That looks overly tight in the face of timing delays and actual consideration to be paid if indeed it comes out to be a partial offer.