Thaicom

Thaicom Plc (THCOM)

Investment thesis: Following our meeting last week with Ms Suphajee Suthumpun, the CEO of THCOM, we remain confident that the firm will post a core profit for FY11. We expect more substantial core earnings in FY12, led by marketing progress for the IPSTAR in China, Australia, New Zealand, Indonesia and the Philippines and the divestment of Mfone (the Cambodian telecoms operator). In China, we expect IPSTAR to implement a direct sales strategy (already approved by China Telecom). Chinese business expansion and the divestment of Mfone would mean upside to our FY12 earnings forecast. Furthermore, we anticipate that deals will be signed with New Zealand’s national service provider (NSO) and with the government of the Philippines during 1H12. Our BUY rating stands, premised on: 1) black ink for FY11 and 2) a deeply discounted valuation.
Direct sales in China next year: China Telecom Satellite (CTS—IPSTAR’s partner in China) recently agreed to allow IPSTAR to make direct sales in the Chinese market. Moreover, THCOM is currently talking with a potential new Chinese strategic partner for bulk bandwidth sales; a deal is expected by YE11. We expect stronger revenues from China next year, driven by direct sales. China presents scope for upside to our FY12 earnings forecast.
Thaicom 7 to add Bt1-2/share to THCOM: On Dec 15, the firm signed a cooperation agreement with Asia Satellite Telecommunications Co Ltd (AsiaSat) in order to maintain legal possession of its 120 degrees East orbital slot and to develop and build a Thaicom 7 satellite (expected to be launched into orbit by early 2014). Under the agreement, AsiaSat will pay the entire initial investment cost and THCOM will make installment repayments to AsiaSat twice a year throughout the 15-year operating life of Thaicom 7. We preliminarily estimate the incremental value of Thaicom 7 to THCOM at Bt1-2/share.
Mfone likely to be sold in 1Q12: As the Cambodian government has recently allowed two new players into the market (bringing the total number of operators to 10), THCOM plans to sell its stake in Mfone to other parties. Management anticipates that the sale will be finalized in 1Q12. The Mfone’s divestment should boost consolidated FY12 profit.

Outlook
Direct sales in China next year: China Telecom Satellite (CTS—IPSTAR’s partner in China) recently agreed to allow IPSTAR to make direct sales in the Chinese market. Moreover, THCOM is currently talking with a potential new Chinese strategic partner for bulk bandwidth sales; a deal is expected by YE11. This new partner would then sell bulk bandwidth to the Chinese government for such applications as Universal Service Obligation (USO) and its Ministry of Education’s (MOE) broadband internet project for schools, according to Ms Suphajee. We expect stronger sales in China next year, driven by IPSTAR direct sales, which would mean scope for upside to our FY12 earnings forecast. We conservatively assume about a 3% bandwidth utilization rate for China (of 25% of IPSTAR bandwidth allocated to that country), up from less than 1% in FY11.