Intouch Holdings

Core profit in line with estimate   

INTUCH posted a Bt3.78bn net profit for 3Q14, up by 12% YoY and 8% QoQ. Excluding extra items in the quarter—a Bt41m FX gain, a Bt109m impairment for ITV and a Bt78m proportionate equipment write-off for ADVANC—core earnings would be Bt3.93bn, up by 10% YoY and 5% QoQ. Net profit exceeded our model by 5%, thanks to lower extra one-off expenses than assumed. However, its core profit was in line with our estimate. ADVANC’s core earnings were in line with our model, while THCOM’s core earnings were 10% lower than our projection, due to heavier service costs and tax expenses than assumed. 

Result highlights 

The YoY core profit rise was led by ADVANC (up 7% YoY) and THCOM (up 28% YoY). ADVANC's YoY core earnings increase was driven by lower regulatory costs (down 26% YoY) and modestly higher service income (up 2% YoY). Impressive nonvoice income growth of 39% YoY outweighed the effect of a 17% fall in voice income (see details in ADVANC 3Q14 results). 

THCOM’s YoY core profit jump was due to greater revenue for Thaicom 6 and for IPSTAR (led by China and NBN Australia), one-time revenue-sharing income from Synertone, greater IPSTAR UT sales to India and Australia and increased LTC receipts. Conventional satellite revenue rose by 23% YoY and 1% QoQ, driven by a higher Thaicom 6 utilization rate (see details in THCOM 3Q14 results). 

Outlook

We preliminarily forecast a Bt4bn 4Q14 core profit for INTUCH, up by 15% YoY and 2% QoQ, led by THCOM’s core earnings jump (on greater receipts for Thaicom 6, LTC and NBN Australia and the start-up of Thaicom 7 revenue in 4Q14) and a core earnings recovery at ADVANC. We expect ADVANC’s service income (excl. IC) will rise 3-4% YoY in 4Q14. We also believe that INTUCH’s FY14 guidance for its subsidiaries’ aggregate sales and service income growth of 5-7% is way too conservative, given 9M14 top-line growth of 15% YoY. 

What’s changed? 

Our FY14 core profit forecast stands unchanged.

Recommendation

We have a BUY rating on INTUCH, premised on a solid FY14-15 earnings growth outlook, led by ADVANC (service income recovery) and THCOM (Thaicom 6, 7 and IPSTAR’s new markets) and a good dividend yield of 7% for FY15 operations.