Thaicom

Thaicom Plc (THCOM)

We expect Thaicom’s earnings to fire up in FY12 and gain altitude in FY13-14, underpinned by new satellite capacity, higher demand for TV channels and high operating leverage. Thaicom could resume dividend payment in FY12 onwards. We initiate coverage on Thaicom with Outperform and an SOP-based target price. Our earnings forecasts are conservative, factoring in the gradual take-up of Thaicom 6 capacity, Thaicom 4’s backlog and loss-making Mfone. Potential re-rating catalysts are the bulk sale of Thaicom 4 capacity, stronger presales for Thaicom 6 and a dividend surprise. 

One of Asia’s leading satellite operators
Thaicom, formerly Shin Satellite, is one of the leading satellite operators in Asia. Thaicom operates two satellites: Thaicom 4, the only broadband satellite in Asia, and Thaicom 5, a conventional satellite. It plans to launch two new conventional satellites: Thaicom 6 in mid-FY13 and Thaicom 7 in early-FY14. Its conventional satellite capacity will capture the growing demand for TV channels arising from the liberalisation of the Thai broadcasting industry and the growing popularity of high-definition TV. Its broadband satellite has developed a mobile backhaul solution and has been well-received by regional telcos, such as Softbank, China Telecom, Bharti.

Low-risk assumptions
Our core net profit growth estimates of 25-91% for FY12-14 should be achievable. We adopt low-risk assumptions to avoid exaggerated estimates given the high operating leverage of the capital-intensive satellite business. We factor in 1) existing revenue from Thaicom 5, 2) Thaicom 4's existing contract backlog plus new deals with TOT, 3) gradual take-up of Thaicom 6 capacity, 4) no contribution from Thaicom 7, and 5) loss-making Mfone.

Risk/reward profile
Our risk/reward profile justifies an Outperform call on Thaicom. Our scenario analysis illustrates that Thaicom's fair value should jump from THB22.7 to THB28 if it reaches bulk bandwidth lease agreements (50% utilisation) with Indian and Chinese customers. Meanwhile, if Thaicom decides to liquidate Mfone, the downside risk is capped at THB0.36 or 2% of our target price.