Thaicom

Thaicom Plc (THCOM) 

 

Investment thesis

We expect the Thaicom 6’s remaining sales in Africa and IPSTAR’s bandwidth sales in Indonesia and Philippines to make progress in 2H15 or 1H16, which should provide scope for a FY16 earnings upside. Our BUY rating stands for THCOM, premised on its solid long-term earnings growth led by Thaicom 8 (2016-17), the IPSTAR sales in India, Indonesia and the Philippines, and LTC’s higher earnings growth. 

Insights into 2Q15—a modest YoY core earnings rise

We estimate a Bt550m net profit for 2Q15, up 11% YoY and 2% QoQ. In this quarter, we assume that THCOM will realize a Bt230m net-of-tax gain from the 2% sale of its entire 5% stake in Synertone. Stripping out such realized gain and a Bt200m FX loss in 2Q15, core profit would be Bt520m, up slightly 2% YoY and 12% QoQ. The assumed slight YoY core profit rise is attributable to the utilization rates of Thaicom 7 (57-60% at end-June 2015 against the absence of Thaicom 7 revenue in 2Q14, income that started mid-Nov 2014); greater IPSTAR’s user terminal sale to NBN Australia and higher LTC earnings. 

Thaicom 7’s higher utilization rate drives QoQ core profit gain

The QoQ core profit rise is due to the expanded utilization rate of Thaicom 7 (57-60% against 50% at end-March 2015), greater LTC earnings and the lower marketing and interest expenses. Revenues from conventional satellites and IPSTAR will rise 18% YoY and 2% YoY, respectively. Thaicom 6’s utilization rate remains stable at 67% at end-June (against 67% at end-March), due to no extra sales in African markets. IPSTAR bandwidth sales will be more-or-less flattish QoQ. 

African market remains a challenge for Thaicom 6

The African market remains tough due to the large number of players. But, we expect it to conclude the (likely bulk) sales in Africa in FY16. It is also in talks with one broadcaster. Regarding IPSTAR’s potentially new markets, we expect more progress in Indonesia than Philippines in anticipation of one deal being concluded with an Indonesian client in 2H15. It is in talks with Gilat Satellite Networks Limited (GILAT), a major global ground-segment-equipment maker, to do marketing over its user terminals to support bandwidth sales in the Philippines. Further IPSTAR sales in India have failed to make much progress so far. 

Worst-case scenario—ADVANC to replace TOT for 1.5Gbps usage

TOT is yet to submit any official documents expressing its intention to terminate its IPSTAR contract with THCOM. The worst-case scenario would be that it might cancel the second contract for the additional 50% bandwidth usage—1.5Gbps (4% of total IPSTAR capacity)—and ADVANC would be the new potential telecom client to replace TOT for the expansion of its fixed broadband business in rural areas. We believe that TOT would continue to keep the first contract of 50% bandwidth usage to cater to its SchoolNet and Free-WiFi projects.