Thaicom

Thaicom Plc (THCOM)

Investment thesis: The 2Q12 earnings preview meeting reaffirmed our bullish view of the 2Q12 earnings outlook. We expect a robust QoQ rise and a YoY turnaround, bolstered by strong Thaicom 5 and IPSTAR growth and well-controlled OPEX. Strong earnings growth momentum will be sustained through 2H12-1H13, underpinned by marketing progress in China, Indian bandwidth ramp-up and new IPSTAR contracts signed with TOT and with partners in Indonesia and the Philippines. Our BUY ratings stands, premised on an FY12 bottom-line turnaround and the cheap valuation—a YE12 PBV of 1.2x and EV/EBITDA of 6.3x against a long-term EV/EBITDA ratio of 9x.
Hefty 2Q12 profit growth estimate: We estimate a Bt110m net profit for 2Q12, up 160% QoQ and a YoY turnaround. Excluding extra items—FX and a Bt41m one-time impairment for Mfone in 1Q12—2Q12 core profit would have been Bt150m, a 112% QoQ jump and a turnaround from red ink in 2Q11. The QoQ core profit jump was due to: 1) sustained growth in Thaicom 5 and IPSTAR bandwidth revenues, 2) a jump in IPSTAR user terminal (UT) sales and 3) a significant reduction in OPEX—there was a Bt90m Chinese gateway operating expense in 1Q12, but there will be none in 2Q12. There won’t be an additional impairment for Mfone in 2Q12.
Speculation over INTUCH upping stake in THCOM: The recent share price rally was due in part to speculation that INTUCH might increase its stake in THCOM by another 10% after the ICT Minister, Anudith Nakornthap, urged THCOM to keep to its original concession conditions. One of those conditions was that INTUCH’s stake in THCOM must be 51%. THCOM claims that it didn’t breach any conditions of its concession. Previous amendments to the concession were approved by the ICT Ministry, it claims.
IPSTAR progress in other countries: Negotiations with other provinces in China to offer mobile backhaul and talks with China Satellite Communication, its previous Chinese partner, to sell more bandwidth, are currently underway. The talks to share its gateways with other Indian operators have progressed well. In Thailand, TOT should sign a new contract for increased bandwidth usage in 2H12. New contract signings with telecom operators in Indonesia and Philippines are expected in 2H12.