Thaicom

Thaicom Plc (THCOM)

What’s new? On Dec 15, THCOM signed a cooperation agreement with Asia Satellite Telecommunications Co Ltd (AsiaSat) in order to preserve its 120 degrees East orbital slot and build a Thaicom 7 satellite. Under the agreement, AsiaSat will initially pay the entire investment cost, then THCOM will make installment repayments to AsiaSat twice a year throughout the operating life of Thaicom 7.
The new satellite will have a total of 28 C-band transponders and a useful life of 15 years. THCOM will own not in excess of 14 transponders. The total investment in Thaicom 7 will be about US$171m (Bt5.37bn), inclusive of satellite, launcher and insurance, ground system and project administration costs. It is expected to be launched by early 2014.   
Analysis: The news is positive for THCOM. Thaicom 7 will expand the scale of its conventional satellite business and there is increasing demand for C-band transponders among Southeast and South Asian broadcasters. The planned satellite will mean more bandwidth capacity (Thaicom 5 is now fully utilized) to service broadcasting and video clients. Moreover, the backloaded funding structure will benefit THCOM’s income statement (AsiaSat will initially pay for the project in its entirety).
Note that Thaicom 7 will operate under a Type-3 license issued by the NBTC (not a concession), so we anticipate that the regulatory cost will be much lower—a 2% annual business license fee plus some annual frequency fee against a current progressive revenue-sharing rate of 20.5%, Sept 2011-Sept 2016, and 22.5%, Sept 2016 onward under THCOM’s existing concession.
Moreover, from 2012 until the launch of Thaicom 7, AsiaSat will move one of its satellites from its current orbital slot at 122 degrees to THCOM’s 120 degrees East slot, which will preserve THCOM’s right to orbital slot (which would fall open to other parties in Jan 2012 if it remained unused). Management confirmed that THCOM will use at least one AsiaSat transponder during the FY12-13 interim.
Action: Our BUY rating stands, based on: 1) a cheap valuation and 2) anticipation of a turnaround in 2H11. We will soon revise up our net profit forecasts and DCF-derived valuation to factor in the incremental value of Thaicom 7.

--Thaicom
Bualuang Securities
Partnership with AsiaSat to build Thaicom 7
BUY (maintained)
Target Price: Bt18.00
Price (15/12/11): Bt10.00
Thaicom Plc (THCOM)
What’s new? On Dec 15, THCOM signed a cooperation agreement with Asia Satellite Telecommunications Co Ltd (AsiaSat) in order to preserve its 120 degrees East orbital slot and build a Thaicom 7 satellite. Under the agreement, AsiaSat will initially pay the entire investment cost, then THCOM will make installment repayments to AsiaSat twice a year throughout the operating life of Thaicom 7.
The new satellite will have a total of 28 C-band transponders and a useful life of 15 years. THCOM will own not in excess of 14 transponders. The total investment in Thaicom 7 will be about US$171m (Bt5.37bn), inclusive of satellite, launcher and insurance, ground system and project administration costs. It is expected to be launched by early 2014.   
Analysis: The news is positive for THCOM. Thaicom 7 will expand the scale of its conventional satellite business and there is increasing demand for C-band transponders among Southeast and South Asian broadcasters. The planned satellite will mean more bandwidth capacity (Thaicom 5 is now fully utilized) to service broadcasting and video clients. Moreover, the backloaded funding structure will benefit THCOM’s income statement (AsiaSat will initially pay for the project in its entirety).
Note that Thaicom 7 will operate under a Type-3 license issued by the NBTC (not a concession), so we anticipate that the regulatory cost will be much lower—a 2% annual business license fee plus some annual frequency fee against a current progressive revenue-sharing rate of 20.5%, Sept 2011-Sept 2016, and 22.5%, Sept 2016 onward under THCOM’s existing concession.
Moreover, from 2012 until the launch of Thaicom 7, AsiaSat will move one of its satellites from its current orbital slot at 122 degrees to THCOM’s 120 degrees East slot, which will preserve THCOM’s right to orbital slot (which would fall open to other parties in Jan 2012 if it remained unused). Management confirmed that THCOM will use at least one AsiaSat transponder during the FY12-13 interim.
Action: Our BUY rating stands, based on: 1) a cheap valuation and 2) anticipation of a turnaround in 2H11. We will soon revise up our net profit forecasts and DCF-derived valuation to factor in the incremental value of Thaicom 7.

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