Thaicom

Thaicom Plc (THCOM)
 

Investment thesis: We forecast that 2Q12 core earnings will jump, driven by increased satellite revenue at both Thaicom 5 and IPSTAR and the absence of a Bt90m one-time gateway operating expense (booked in 1Q12 for China). IPSTAR marketing progress in China and India and higher income from NBN (Australia), MEASAT (Malaysia) and two new Japanese clients will augment IPSTAR bandwidth revenue in 2H12. Our BUY rating stands, premised on an FY12 turnaround.    
No Mfone impairment in 2Q12: The CEO guides for no Mfone impairment in 2Q12. THCOM is still talking to potential buyers of the Cambodian telco.
Some IPSTAR progress in China: The firm has started providing backhaul for China Telecom in Xinjiang Province. The CEO said THCOM will offer backhaul for China Telecom for other provinces as well. It will also recruit new partners to boost sales in that country in 2H12. THCOM is considering partnering with China Satellite Communication, its previous Chinese partner, to sell more bandwidth.
IPSTAR progress in other countries: The Indian Department of Telecommunications has finally acquiesced to THCOM sharing its satellite gateways with other operators. The CEO said talks are currently underway with several Indian telcos with a view to selling additional bandwidth in that country (presumably backhaul). In Indonesia and the Philippines, THCOM is working on deals with big telcos for potential bulk bandwidth sales (presumably backhaul). Moreover, TOT will extend its contract by another 3-5 years (the contract actually expired in March 2012). Management targets IPSTAR utilization rates of 32-35% by YE12 and 40-45% by YE13, up from 25% currently.
2Q12 core profit jump: We expect a 2Q12 core profit in the range of Bt70-100m, up significantly QoQ and a YoY turnaround, driven by bandwidth sales at Thaicom 5, a full quarter of receipts from KDDI, about a month of revenue from NTT Docomo and a sharp QoQ fall in OPEX (THCOM reported Bt90m in gateway operating expenses in China in 1Q12). Further ahead, NBN income recognition will jump substantially in 3Q12, due to the revenue structure of the contract that the firm signed with The Australian government.