SHIN Corporation

SHIN Corporation Plc (INTUCH) 

High visibility of a THB2.2 DPS to be paid in Aug, 3G licensing in Oct and THCOM’s 2H12 turnaround make Shin Corp an investor’s shelter from rising market volatility. A new digital terrestrial TV licence and broadcasting satellite launch could add flavour in 2013. Management sounded upbeat on the satellite launch during our 2-day NDR in Malaysia. We maintain our blended DDM-SOP-based target price and Outperform rating. Speculation of a share sale by Temasek which would not affect its fundamentals has led to share price underperformance relative to its proxy AIS. This presents a buying opportunity. 
What Happened
Management met 15 institutional
investors during a 2-day non-deal
roadshow (NDR) in Malaysia. It
sounded quite upbeat about
THCOM’s new satellite launch plans
for the next 2-3 years. Key messages
were 1) its commitment to passing
through most of the dividends from
its investment portfolio to
shareholders, 2) its high confidence
What we think
Although the clients we met were
familiar with AIS, some of them were
not familiar with Shin Corp, making
the stock fairly under-owned. All the
clients were positive on its dividend
vehicle proposition and agreed with
us that some discount should be
applied to its SOP value given its
holding company status. AIS’s 3G
story is well-known and AIS is one of
their favourite Thai stocks, suggesting
that its share price has already largely
priced in 3G upside. Clients knew
about THCOM’s turnaround story
this year but most were not familiar
with the business models of
broadband and broadcasting satellites.
Clients were also intrigued by
potential synergies between the TV,
satellite and mobile businesses under
the group’s long-term diversification
into digital terrestrial TV.
What You Should Do
We think that the recent share price
underperformance against its proxy,
AIS offers a great opportunity to buy
into Shin Corp, which is trading at a
23% discount to its NAV compared to
an average discount of 16% pre 2006.
We hosted a non-deal roadshow for Shin Corp’s SVP, Mr. Kim Siritaweechai,
and head of investor relations, Ms. Tomyantee Kongpoolsilp, in Malaysia and
met 15 institutional investors over two days.
Although all the clients were familiar with AIS, some of them were not familiar
with Shin Corp, making the stock fairly under-owned. They were open to the
idea of Shin Corp being the cheaper channel into Thailand’s 3G story through its
40.45% ownership of AIS. During the NDR, the appropriate level of holding
company discount we should apply to its SOP was one of the most debated
topics next to 1) the certainty of 3G/2.1GHz licensing in Oct and 2) speculation
over Temasek’s plan to sell more of its shares in Shin Corp. We summarise
below the key points discussed.
3.6% 1H12 dividend yield estimate
We expect Shin Corp to announce a 1H12 DPS of THB2.2 based on a 98%
payout ratio. It will announce its 2Q12 results and 1H12 DPS on 14 Aug. We also
forecast AIS to report THB8.6bn net profit in 2Q12, up 40.5% yoy but down
3.7% qoq. We expect it to announce a DPS of THB5.89 for 1H12, based 100%
dividend payout.
Unlikely to load up on THCOM
We think that the irregularity over the concession amendments should not be a
concern at this point. This government, which has been in power for over a year,
is, in our view, more telco-friendly than the former government. In addition,
like the amendments to AIS’s concession agreements, the amendments to
THCOM’s concession agreements will be valid if the cabinet rules out any
national damage from such amendments.
On 4 Jul, the ICT minister said that the ministry was reviewing the concession
amendments between the ministry and THCOM. He said that the ministry
might ask Shin Corp to increase its ownership of THCOM from 41% to 51% as
stated in the original concession agreement if the ministry finds that the past
amendment was inappropriate and caused damage to the country.
Dividend-paying ability unaffected by new investments
We are positive on Shin Corp’s initiative to diversify the group from the
telecoms business to the media business including digital TV. We believe that
this business expansion will not affect Shin Corp’s dividend proposition as this
business is not capital-intensive (compared to AIS’s 3G investment) and Shin
Corp is in a net cash position. Furthermore, its past share price performance
shows that investors were willing to pay a premium when the company
diversified into Thai Air Asia and Capital OK in 2003.
Shin Corp’s SVP said that the company plans to go for a digital TV infrastructure
licence and a digital TV broadcasting licence. Its IR head added that the
company has both satellite network and cellular cell sites, which should be
integrated and used for digital TV infrastructure. The group should be able to
leverage AIS’s customer base of 36m mobile subscribers and THCOM’s 1.5m
satellite TV household audience.
For the digital TV broadcasting business, the initial investment cost should be
about THB2bn-3bn for three digital TV channel licences, studios and content,
according to the company’s preliminary estimate. It will set up a new subsidiary,
which it hopes to list on the stockmarket eventually. This new company is
expected to be self-financed. Losses from this venture during its early years are
not expected to affect Shin Corp’s dividend capacity.
Temasek’s share sales do not affect fundamentals
Market speculation on further Shin Corp share sales by Temasek may affect
investor sentiment on the stock in the short term given the supply of additional
shares and the c.7-10% discount to the market price that Temasek sold the
shares for in Aug 11 and Jan 12. This may be one reason why its share price
discount to its SOP value recently widened from 21% to 23%. As the Temasek
share sale would not affect the group’s fundamentals, we view its share price
underperformance as a great buying opportunity.
in 3G licensing in Oct, 3) AIS’s 100%
dividend payout policy despite
peaking 3G capex in FY13-14, 4)
strong turnaround prospects for
THCOM and 5) diversification into
the digital terrestrial TV industry.