The construction of 4G infrastructure will pressure Taiwan Mobile’s (3045) Q3 profits while the effect of 4G in increasing Taiwan Mobile’s average revenue per user (ARPU) is limited. J.P. Morgan and Macquarie have issued hold ratings for Taiwan Mobile.
J.P. Morgan pointed out, threats from new 4G operators are limited in the short term. However, the amortization of Taiwan Mobile’s 4G licensing and construction costs may begin dragging down earnings in Q3. On another front, Taiwan Mobile and FarEasTone (4904) have reached a spectrum swap agreement allowing both companies to utilize the 1800MHz frequency spectrum in September and provide 4G service for iPhone users.
However, J.P. Morgan stated concerns over Taiwan Mobile’s profit outlook and competition from future entrants into the 4G market and, thus, maintains Taiwan Mobile’s “hold” rating while lowering the company’s target price from NT$100 to NT$97.
The number of Taiwan Mobile 4G users has successfully reached 100,000 and company management is confident of reaching the goal of 500,000 users by year’s end. However, Macquarie indicated, it must be noted that 4G’s effect on raising ARPU has yet to be significant. Coupled with accelerating 4G construction, Taiwan Mobile does not rule out increasing its capital expenditure budget. Macquarie gives Taiwan Mobile a “hold” rating with a target price of NT$96.