What you need to know about AIS: Singtel-backed telco in Thailand with 4.4% dividend yield

What happened? 

For investors looking at the Singapore stock market to discover dividend-paying stocks, there is a wealth of opportunities with many companies offering a decent dividend yield. 

After we shared previously that PTTEP is a Thai blue-chip company trading on the Singapore stock market offering a dividend yield of above 6%, we received questions on whether there are similar stocks with an attractive dividend yield. 

This search for dividends led us to Advanced Info Service (AIS) - Thailand's largest telecommunications conglomerate partially owned by Singtel. 

It is one of the two largest mobile operators in Thailand, and is also the largest player in the high-speed internet broadband service under brands ‘AIS Fibre’ and ‘3BB’.

AIS has started to see benefits from industry consolidation and raised its dividend payment in 2023. 

Let us find out more about AIS and its prospects in the coming year.

What you need to know about AIS

Advanced Info Service (AIS) provides key services including Mobile Communication Service (4G, 5G), High-speed internet broadband service for both of consumer and business, and Digital businesses for enterprise customers.

AIS has strong shareholders with 40.44% owned by Intouch Holding and 23.31% owned by Singtel. 

At the Intouch Holding level, Gulf Energy Development (GULF), the biggest private power producer in Thailand, holds the biggest stake of 47.4%. 

GULF has increased its stake in Intouch Holding by investing more than Bt90bn during 2020-22 to become the biggest shareholder in Intouch and, effectively, a control in AIS. GULF has also started to take more active roles at both Intouch Holding and AIS since 2022. 

Here are a few factors that can help to drive AIS’ share price and dividends in the coming years. 

#1 Beneficiary of industry consolidation. 

In 2022, TRUE and DTAC, then the second and third largest mobile operators, have agreed to merge. The merger of DTAC and TRUE, currently operating as TRUE, was completed on 1 Mar 2023.

Thailand's telecom sector has become a duopoly with each operator having a similar market share and network capacity.

The consolidation of players in the industry is expected to result in improving revenue and profit of mobile operators as measured by Average Revenue Per User (ARPU). 

The improvements have been seen in other countries where similar cases of mergers between major operators occurred.

Since 2023, price competition has been less intense as both players removed aggressive loss-making price plans. Also, TRUE is now focusing on the integration and cost-cutting of the combined entity. 

As a result, the normalized net profit after tax of True improved to Bt 0.8 billion in the first quarter of 2024 from a loss of Bt 0.4 billion in the previous quarter. 

This has also partly helped to increase the ARPU of AIS since 1Q23.

#2 - Lower competition means lower expenses 

With industry consolidation and lower competition, cost savings come from lower advertising expenses, lower promotions, etc. 

AIS’s marketing expenses dropped 17.7% in 2023 from the previous year. 

Electricity cost is now also on the decline. Electricity costs could be as high as 30% of the network’s operating costs for the telecom industry. 

#3 - Potentially stronger growth from high-speed internet broadband service 

In 2023, AIS started to pursue a more aggressive strategy by spending Bt28bn to buy a stake in 3BB broadband in order to strengthen its high-speed internet services.  The deal was completed in November 2023. 

Following the completion of the acquisition, Thailand’s broadband market is now virtually a duopoly with AIS having the largest market share. 

The consolidation of 3BB is positive for AIS’s operating cash flow though it may contribute to an accounting loss in 2024. 

Note that the high-speed internet broadband service, supported by the acquisition of 3BB, is the fastest-growing business of AIS in 2023. 

The household penetration for fixed broadband is around 50% in Thailand. This compares to a penetration rate of about 93% in Singapore as of December 2022, indicating further headroom for growth. 

This business should be a new growth engine for AIS and contribute to growth in operating cash flow. 

#4 - Potentially stronger free cash flow with lower investments ahead

Apart from improving profitability as a result of industry consolidation, AIS guides for lower Capital Expenditures (CAPEX) spending in 2024 compared to 2023. 

High CAPEX in 2023 includes peak spending on 5G network expansion and the acquisition of 3BB broadband network. 

Going forward, the investment cycle in the 5G network in Thailand is expected to be at a slower pace given the lack of clear 5G use cases.

Separately, costs of acquisition or renewal of spectrum are not expected to be high as the bidding is unlikely to be as aggressive as in the past given the duopolistic nature of the industry.

# 5 - Potential for higher dividend payment

With the combination of higher profitability and lower capital expenditures, we expect AIS’s free cash flow to improve, allowing for higher dividend payments.  

In 2023, AIS’s Net Debt to Equity ratio, the ratio measuring a company’s financial leverage, has increased to 1.23x from 0.9x in the previous year. We believe that the increase is temporary as a result of the 3BB acquisition. 

AIS’s financial leverage is expected to reduce overtime with annual operating cash flow generation of around Bt90bn a year. 

In addition, a major shareholder of AIS, Intouch Holding (which is ultimately owned by GULF) is also pushing for higher dividend payments. 

Though AIS’s Dividend Payout ratio (dividend per share relative to its net income) is set at the minimum of 70%, the actual payout ratio has been raised from 70-80% previously to 88% in 2022 and 2023 after GULF increased control of Intouch Holding and, effectively, AIS in 2021, 

GULF has spent more than Bt90bn to acquire a stake in Intouch with funds from both debt and equity. With the rising interest rate environment, we expect GULF to give priority to reducing its own financial leverage. 

Hence, we expect GULF, as an ultimate shareholder of AIS, to aggressively squeeze cash from AIS in the form of higher dividend payments. 

In 2023, AIS has increased its dividend per share from Bt7.69/share to Bt8.61/share. 

What are the risks of AIS? 

A new round of price war. In the past, TRUE had been an aggressive player in terms of pricing. There is a risk that TRUE may introduce a new round of price competition. However, we believe that the new merged entity would be more rational, especially with Telenor owning a stake in the merged entity and continuing to have an active involvement in day-to-day operations. 

Regulatory risks. Though the merger of TRUE and DTAC has been acknowledged by the regulator NBTC (National Broadcasting and Telecommunications Commission), the Central Administrative Court has recently accepted the lawsuits which ask the Court to revoke the NBTC’s decision. The outcome is still pending.  

Economic slowdown. Customers may likely be more price-sensitive. Operators could find it more difficult to increase tariffs war.

What would Beansprout do? 

We would consider AIS if we are looking for a company with strong shareholders, as well as solid cash flow and dividends. 

AIS could also benefit from the improving industry structure following the consolidation.

At Bt195/share, AIS is trading on a P/E of 19.9x and a 4.4% dividend yield. 

The AIS SDR trades under the stock code TADD after being launched on the Singapore Exchange in April. 

Apart from AIS, the other recently-launched SDRs which offer more options for investors looking to invest in Thai blue-chip companies include Delta Electronics, Gulf Energy, Siam Cement, as well as Kasikornbank (KBANK).

Here’s a quick summary of why these companies might be worth a closer look:

• Delta Electronics: Largest electronics manufacturer in Thailand
• Gulf Energy: Thailand's top energy producer
• Siam Cement: ASEAN's largest industrial material conglomerate 
• KBANK: Thailand's best domestic bank 2023 

SDRs trade on the Singapore Exchange in Singapore Dollars (SGD). The same trading hours for the Singapore Exchange apply to the trading of SDRs, which is 9 am to 5.16 pm SGT currently. 

SDRs are tradable by all investor types, as they are classified as Excluded Investment Products (EIP). While this product is available to anyone with a basic understanding of financial instruments, do make sure that you are aware of the product characteristics and risks before you invest in it. 

You will be able to buy Singapore Depository Receipts directly through a stock trading platform which offers trading on the Singapore Exchange.

Click here to read our earlier article explaining what are Singapore Depository Receipts. 

You can also find more resources at the SGX product page.

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