TAC’s 4Q2008 EBITDA and net profit were 8.4% and 22.5% below our expectations, respectively. Positive surprises: The biggest positive surprise was that international roaming revenues did not decline as much as feared because of the airport closure, and as a result, total customer revenue was 2.9% above our forecast, or down only 0.5% qoq.

Furthermore, TAC intends to pay a dividend of Bt1.5/share, which was above our forecast of Bt0.95. Negative surprises: The biggest negative surprise was that net interconnect expenses increased to Bt240 mn because of lower interconnect revenue versus our expectation of a neutral impact from interconnect. This bodes well for Advanced Info Service (ADVA.BK, Buy, on Conviction List), which is expected to release results on February 18. SG&A expenses also increased more than expected.

Combined, these issues led to a 13.1% qoq decline in EBITDA. To address this issue, TAC plans to focus more on interconnect cost management and implement a cost efficiency program.

We maintain our Buy rating and 12-month SOTP-based target price of Bt42.75. Our price target is derived from capitalizing our estimate of normalized 2009E free cash flow at a multiple of 11.5X, which flows from a 9% Thai cost of equity and 2% terminal growth assumption. A key potential positive catalyst for the stock will be additional progress toward the NTC auctioning 3G licenses targeted for 3Q. Key downside risk: higher than expected net interconnection expenses.