Thaicom

Thaicom Plc (THCOM)

 

Investment thesis

Its share price has retreated on the news of the resignation of Chief Executive Suphajee Suthumpun. However, its core operations remain strong in 2H15 through FY16 with the scope for upside expected during 4Q15-1H16 from the remaining sales of IPSTAR in Indonesia and Philippines and additional sales in African markets for Thaicom 6. Our BUY rating stands, led by its solid long-term earnings growth profile from Thaicom 7-9, LTC and remaining Thaicom 6 and IPSTAR sales. 

Insights into 3Q15—a solid YoY core earnings rise

We estimate a Bt215m net profit for 3Q15, down 23% YoY and 63% QoQ. We assume THCOM will continue to realize a Bt50m net-of-tax gain from the 2% sale of its remaining 3% stake in Synertone. Stripping out that realized gain and a Bt418m FX loss in 3Q15, core profit will be Bt583m, up a strong 24% YoY and 2% QoQ. The solid core profit rise is led by the weaker THB/USD, greater Thaicom 7 utilization rates (65% at end-Sept against 58% at end-June and none from Thaicom 7 in 3Q14; its receipts started mid-Nov 2014) and IPSTAR from Indonesia (up 200Mbps), greater IPSTAR user terminal sales in India, an LTC earnings jump, well-controlled SG&A and lower interest expenses. Despite a stable 67% Thaicom 6 utilization, its managed service income in Africa has started to rise modestly in 3Q15.

Thaicom 7’s bulk sales expected to conclude in 4Q15 

We expect Thaicom 7’s utilization rate to reach 100% by YE15, up from 65% at end-Sept, awaiting the end of a bulk sale with one client. Thaicom 6’s remaining African sales are tough on greater supply and price-led competition, but sales strategy change to total managed service solutions will bear fruit in 4Q15. The deal to swap the Thaicom 6’s transponders with those of the EU satellite operator is under way. We expect Thaicom 8’s presales to reach 45-50% by mid-2016 (when it is launched), up from 13% at end-Sept, led by strong demand for HD channels. It has applied for a separate 20-year license for the 20Gbps-capacity Thaicom 9, or IPSTAR 2, from the NBTC and will ask the ICT Ministry to file the frequency co-ordination with the ITU. But, uncertainty remains whether the ministry will impose any fees on Thaicom 9.

IPSTAR bulk sales progress in Indonesia expected for 4Q15 

IPSTAR sales in Indonesia and Philippines have progressed well so far, with the aim to conclude the bulk sales in both markets. We expect to see more progress in bulk sales with one telecoms firm in Indonesia, which represents 6% of IPSTAR’s total capacity, by YE15 and another one in Philippines in 1H16. It is in talks with NBN Australia to extend its IPSTAR contract for another three years, FY18-21, after its recent one-year contract extension to FY17. We expect a result in mid-2016. Further IPSTAR sales in India have made little progress so far. TOT remains committed to using its 3Gbps capacity chunk of IPSTAR’s total bandwidth, without any intention to terminate its contract.