Thaicom

Investment thesis

The 2H14-FY15 earnings growth profile is solid, supported by expanding revenue at Thaicom 6 and 7, IPSTAR and LTC. There may be scope upside in FY15 from the sale of remaining capacity of Thaicom 6 (in Africa), Thaicom 7 (in SE Asia and South Asia) and IPSTAR (in India, Malaysia, Indonesia, Philippines and Australia) and value-added service solutions. Our BUY rating stands, premised on strong FY14-15 earnings and future incremental value from Thaicom 8 (scheduled to launch into orbit in 1H16). 

Insights into 3Q14—robust YoY core profit rise 

We estimate a Bt535m net profit for 3Q14, up by 67% YoY and 8% QoQ. Stripping out FX, core profit would be Bt520m, up by 42% YoY and 2% QoQ. The assumed YoY core rise is due to recognition of Thaicom 6 revenue (Feb 2014), IPSTAR Chinese receipts (Oct 2013), one-time revenue-share income with Synertone (new Synertone bandwidth sales to a client), one-time user terminal (UT) revenue and greater bandwidth sales to NBN Australia and increased LTC receipts. The QoQ rise is thanks to greater Thaicom 6 income (led by a higher mean utilization rate and value-added solutions) and IPSTAR bandwidth receipts (led by NBN Australia and Softbank Mobile Japan). 

We estimate that conventional satellite revenue jumped by 26% YoY and 4% QoQ, led by Thaicom 6’s utilization—68% in 3Q14 against 59% in 2Q14—and higher valued added service income from its in-flight WiFi service for Nok Air customers, which started in Sept. IPSTAR revenue should have risen by 25% YoY and 8% QoQ. Because NBN Australia agreed to buy an additional 9k UTs from IPSTAR Australia in 2Q14 (on top of its current deployment of 48k UTs), we expect 9k UT sales and further bandwidth sales to be booked in 3Q14. 

Moreover, we expect greater bandwidth usage by Softbank Mobile for end-to-end solutions for its clients. We estimate Bt13m net-of-tax one-time income from Synertone in 3Q14, based on 8% revenue-sharing on a US$5.8m contract that Synertone had earlier inked with a client. LTC revenue should have risen by 34% YoY and 4% QoQ, led by greater ARPU on increased voice and data usage and subscribership.       

Scope for upside—remaining capacity of Thaicom 6-7 & IPSTAR

THCOM targets growing value-added service income from 15% to 20% of total revenue during the next three years, led by more end-to-end solutions to clients. There would be scope of upside from the expansion of in-flight WiFi services to other airlines, greater IPSTAR bandwidth sales to Malaysia (45% remaining capacity), India (80% remaining capacity), Australia (60% remaining capacity), Indonesia (85% remaining capacity) and the Philippines (90% remaining capacity) and the sale of the remaining 32% of Thaicom 6’s capacity (which is allocated to Africa) and the remaining 50% of Thaicom 7’s capacity.