Thaicom

Thaicom Plc (THCOM)

Investment thesis: We reiterate our BUY rating on THCOM, premised on an FY12 operational turnaround brought about by IPSTAR marketing progress in prime markets and scope for upside to our DCF-based valuation with the future factoring-in of three new satellites—Thaicoms 7, 8 and 9. Although we anticipate a 4Q11 net loss, due to a one-off deferred tax provision, a higher 4Q11 core profit points to a bottom-line turnaround in FY12.   
QoQ 4Q11 core profit rise: We estimate a Bt355m net loss for 4Q11, 129% YoY deeper in the red and a reversal from the Bt16m net profit posted for 3Q11. There will be a one-off non-cash deferred tax provision of Bt400m for the quarter. Stripping out the provision and an FX loss, core profit would have jumped 68% QoQ and turned around from a Bt148m 4Q10 loss. 
The expected YoY core earnings rise is led by revenue from the Australian govt’s National Broadband Network (NBN) and MEASAT of Malaysia, estimated at Bt320m/quarter altogether (effective Oct 2011), a 50% sales price increase for Softbank (in April 2011) and good OPEX management. The QoQ core profit jump is due to: 1) flattish OPEX and 2) better telephone operation numbers. Note that the revenue base in 3Q11 was high, due to Bt253m in one-time IPSTAR receipts—NBN paid a Bt100m gateway access fee and Bt153m in gateway sales to Japan and gateway equipment sales to Myanmar and Australia.
Launches of Thaicoms 8 and 9 by 2015: THCOM plans to launch two new satellites—Thaicom 8 (IPSTAR 2) at 119.5 degrees and Thaicom 9 at 50.5 degrees. It will consider launching IPSTAR 2 once the current IPSTAR’s utilization is 40-50% and the firm can secure 30-50% in pre-sales for the new satellite. We expect such a decision to be made by YE12. The total investment cost for Thaicom 8 shouldn’t exceed US$200m (Bt6bn). Thaicom 9 will be launched in order to maintain THCOM’s possession of the 50.5 degrees east orbital slot, which is due to expire in Nov 2012. The firm plans to expand the footprint of Thaicom 9 to cover the Middle East, Europe and Africa.
Incremental value of Thaicom 8 and 9: Thaicoms 7, 8 and 9 will be launched under NBTC-awarded licenses, so should be subject to much lower regulatory costs than THCOM’s current satellites under concessions. Hence, the scope for upside should be higher. We will factor the planned satellites into our model if we can obtain more information.

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