Thaicom

Core profit short of estimate 

THCOM posted a Bt279m net profit for 3Q14, down by 13% YoY and 44% QoQ. Stripping out a Bt231m proportionate impairment for Teleinfo Media Co Ltd (a CSL subsidiary; THCOM holds 42.07% of CSL), core profit would be Bt469m, up 28% YoY but down 8% QoQ. Net profit was 48% short of our estimate, due to the impairment, which we hadn’t anticipated in our model. Core profit was 10% below our number because of greater service costs and tax expenses than assumed. Gross profit was 6% below our model. GM was 41.8% (we had assumed 45%).

Result highlights 

The YoY core profit jump was due to greater revenues for Thaicom 6 (Feb 2014), IPSTAR China (Oct 2013), one-time revenue-sharing income from Synertone (related to new Synertone bandwidth sales to a client), IPSTAR’s UT sales to India and NBN Australia, greater bandwidth sales to NBN Australia, a rise in LTC receipts and revenue from the in-flight WiFi service for Nok Air customers. The QoQ core profit decline was led by a heavier cost of service and sales (related to equipment costs for the WiFi service for Nok Air), SG&A and tax expenses. Thaicom 6’s mean utilization was 68% in 3Q14, up from 59% in 2Q14.

Conventional satellite revenue rose by 23% YoY and 1% QoQ, driven by a higher Thaicom 6 mean utilization rate and greater value-added services. IPSTAR bandwidth sales rose 15% YoY (flattish QoQ) on greater usage by NBN Australia and recognition of Chinese revenue in 4Q13. LTC’s revenue jumped 29% YoY (flattish QoQ) on greater subscribership and ARPU. The gross profit of conventional satellites rose 20% YoY but slipped 3% QoQ. The GP of IPSTAR jumped 35% YoY (flattish QoQ). The GP of the telephone unit increased by 71% YoY and 6% QoQ. 

Outlook

We forecast a Bt450m core profit for 4Q14, up 28% YoY (due to recognition of Thaicom 6 and 7, greater NBN usage and LTC earnings) but down 4% QoQ (due to recognition of Thaicom 7 depreciation expenses). 

What’s changed? 

We have revised down our core profit forecasts by 6% to Bt1.78bn for FY14 and by 10% to Bt2.12bn for FY15 to factor in weaker 3Q14 core earnings and greater OPEX for Thaicom 7 and its value-added services. Hence, our DCF-based YE15 target price declines 5% to Bt54.

Recommendation

Our BUY rating stands, premised on solid FY14-15 core earnings growth, led by Thaicom 6, Thaicom 7 and IPSTAR.