Shin Corporation

Shin Corporation Plc (INTUCH)

Lower than modeled
INTUCH posted a Bt3.39bn net profit for 3Q13, down by 2% YoY and 8% QoQ. Excluding extra items—an obsolete equipment write-off for ADVANC, FX and an impairment for ITV—core earnings would be Bt3.58bn, down by 7% YoY and 10% QoQ. INTUCH’s net and core profits fell short of our estimates by 10% and 9%, respectively. ADVANC’s core earnings were 5% below our model, due to higher SG&A and tax expenses than assumed. THCOM’s core profit was 4% below our estimate because of higher tax expenses than expected. 
Result highlights
The weaker YoY core earnings were due to ADVANC’s core profit drop, which outweighed the effect of a jump in THCOM’s core profit. ADVANC’s YoY drop was led by surges in marketing, general administrative expenses and network OPEX, which outweighed the effect of greater service revenue (excl. IC) and regulatory cost savings under its 2.1GHz license. Its service revenue (excl. IC) increased 4% YoY (but dipped 0.4% QoQ), underpinned by nonvoice receipts—up by 25% YoY and 3% QoQ (see details in ADVANC’s 3Q13 results).
THCOM’s YoY core profit jump was due to the absence of recurring Mfone losses, greater conventional satellite and IPSTAR bandwidth revenues, declines in IPSTAR service costs and lower interest expenses (see details in THCOM’s 3Q13 results).
Outlook
We forecast a Bt3.58bn 4Q13 net profit for INTUCH, up by 8% YoY and 6% QoQ, led by a modest rise in ADVANC’s net earnings (by 2% YoY and 4% QoQ) and a jump in THCOM’s bottom-line (by 167% YoY and 3% QoQ). For ADVANC, we assume only slightly greater 4Q13 revenue (due to seasonality) and sustained high marketing expenses through FY14, necessitated by intensifying competition. In contrast, THCOM’s earnings will jump on recognition of Chinese revenue for IPSTAR, starting Oct 16, new income from interim satellite capacity ahead of Thaicom 6’s launch in Dec 2013 and greater IPSTAR usage by NBN of Australia and an existing Indian client. 
What’s changed?
We have trimmed our net profit projections by 2% for FY13 to Bt14.7bn and by 5% for FY14 to Bt15.7bn, mainly to factor in diminished expectations for ADVANC’s earnings (by 3% for FY13 and by 5% for FY14). As such, our NAV-based YE14 target price declines 4% to Bt99, pegged to a 4% cut to our ADVANC target price (to Bt245).
Recommendation
Our BUY rating stands, premised on a 6% dividend yield.