Thaicom

Thaicom Plc (THCOM)

Growth momentum to continue: upgrade 2012F/2013F by 35%/13%.

THCOM’s growth momentum is likely to continue in 2H12F, backed by steady growth for iPSTAR
and conventional satellites (thanks to the popularity of satellite TV). Furthermore,THCOM is unlikely to give employees a special reward again this year as all companies in the INTUCH group did in Q3 for the past two years, since the group must stock up on cash for the license auction plus big investment in 3G-2.1 GHz and digital TV. Our 2012F SG&A appears overly pessimistic against the trend seen in 1H12A, where efficient expense control slashed SG&A by 14% YoY and represented 43% of our full-year forecast. This has led us to cut our 2012F SG&A by 9% and 2013F by 8%. This raises 2012F by 35% and 2013F by 13%. We now expect THCOM to emerge out of six consecutive years of losses to a core profit of Bt620mn in 2012F.

Looks for two big developments (with upside to 2013F) by year-end:

1) Big iPSTAR contract in India. THCOM has been negotiating with a big conglomerate in India which wants iPSTAR’s mobile backhaul service for its mobile business. Management is confident it will close this deal this year – and expects it to take 80-100% of the rest of the capacity assigned to India, implying a huge volume of ~4-5 Gbps or 10-13% of iPSTAR’s total capacity. If this deal goes through, we may need to raise our 2013F-2014F further.

2) To divest the loss-making Mfone. THCOM management confirmed that it was working to sell off Mfone, its mobile business in Cambodia that has been generating losses of ~Bt130mn per quarter, unable to compete in the small and highly competitive market in Cambodia. Although the sale – hoped to be by the end of this year – could require booking a loss, this would be a one-off
item, and the relief of the burden could lead to an upgrade in 2013F earnings by as much as 50%

Reaffirm Buy with new mid-2013 TP of Bt25 SOTP. THCOM is our favorite turnaround company with a promising outlook for both iPSTAR and conventional satellites. We maintain Buy with new mid-2013 TP of Bt25 (from Bt20). This is based on SOTP consisting of Bt23.3 per share for the satellite and telephony businesses (based on DCF, 9.8% WACC and 1% terminal growth) and Bt1.7 per share for its 42% holding in CSL (with TP of Bt8.2). THCOM is currently trading at 2012F and 2013F EV/EBITDA of 7.5x and 6.5x respectively which is still lower than its ten-year average of 8.4x. In addition, at our TP of Bt25, THCOM would trade at 2013F EV/EBITDA of 8.3x.