Thaicom

Thaicom Plc (THCOM)

 

- Net profit 9% better than expected thanks to extraordinary profit  

THCOM's 2Q15 net profit was B572m, growing 5.9%qoq and 15%yoy (9% better than expected) thanks to extraordinary profit of B43m (B245m from selling of SYNERTONE shares it had received when selling the entire service capacity of iPSTAR in China to the company two years ago, minus B202m Fx loss). Excluding extraordinary items, 2Q15 normalized profit was B529m, growing 13.5%qoq and 3.5%yoy as expected. Sales and service revenue dropped 4.3%qoq (worse than expected) because revenue from sales of satellite receiver equipment fell at a faster pace than an increase in revenue from Thaicom7 (commencing service since November 2014) with utilization rate rising from 30% in 1Q15 to 58% at end-2Q15. However, profit margin from service is higher than that from sales, SG&A decreased by 5.6%qoq (better than expected) thanks to lower doubtful debt provision, and shared profit from the mobile business in Laos jumped by 67%qoq (better than expected), remarkably boosting normalized profit from 15.1% in 1Q15 to 18% in 2Q15. 

- Normalised profit to grow on sliding scale in 2H15, 2016  

Although 1H15 normalized profit made up only 47.8% of our full-year forecast, we believe 3Q15-4Q15 normalized profit would grow on a sliding scale. A major driving factor is the utilization rate of Thaicom7 that would have increased to 100% at the end of 3Q15 (from clients in India) and 4Q15 is also the first quarter that THCOM fully recognizes benefit from the full utilization rate and the company might also consider selling remaining capacity of other existing satellites (Thaicom6 and iPSTAR), which is not in our forecast. Consequently, overall we estimate THCOM’s profit to grow 30% to B2.1bn in 2015 and 12% next year (due to full-year benefit from Thaicom7 service). However, the forecast has not yet included THCOM’s plan to launch a new satellite, Thaicom8, since 2Q16 onwards; we are waiting to see the company’s presales result at the analyst meeting on August 11; initially, we believe the presales would turn out good since demands for satellite network are still high, especially for HD broadcasting and areas where terrestrial network can not reach. 

- Upside still high even if TOT terminates iPSTAR contract  

We are still optimistic about THCOM's earnings despite short-term negative sentiment from TOT entirely terminating iPSTAR service contract (8% of iPSTAR capacity). In the worst-case scenario that TOT entirely terminates the deal and THCOM cannot find a new client for that terminated capacity, fair value will decrease only B4 to B47, which is still high. We reiterate BUY.