Thaicom

Thaicom Plc (THCOM)

What’s new? Mr Anont Tubthiang, TOT president, said that the state telco will ask THCOM to extend the IPSTAR bandwidth leasing contract from its current six-years, due to end in Dec 2012. The term of the new contract might be less than six years. In Dec 2005, THCOM appointed TOT its exclusive National Service Operator (NSO) to distribute IPSTAR bandwidth in Thailand. Currently TOT, uses about 1.5Gbps of Thailand’s assigned capacity (3Gbps) for its rural telephone and SchoolNet projects. Under the current six-year contract, TOT paid about Bt400m in bandwidth-leasing fees for IPSTAR in the first year, which rose to around Bt475m per annum thereafter.
In a separate development, on Dec 27, 2011 THCOM signed a sales contract for an additional 4,000 IPSTAR user terminals (UT) with BayCity Communications Ltd of New Zealand (IPSTAR’s exclusive NSO in that country).
Analysis: The lease extension will augment IPSTAR’s future bandwidth utilization. We talked with THCOM’s Investor Relations Dept, which said that not only will the contract be extended for another six years, but TOT will also take another 1.5Gbps in bandwidth on top of its current 1.5Gbps (1.5Gbps comprises 4% of IPSTAR’s capacity of 37.4Gbps). Assuming a Bt2m/Mbps sales price for the additional 1.5Gbps, we estimate the total six-year contract value at about Bt3bn, or roughly Bt500m in annual revenue, which would comprise 4-5% of FY13-15 revenues. Assuming a 10% net margin, the extra sales would boost FY13-15 net profits by 3-8%.
We think the increased future TOT usage is related to two planned govt initiatives—the 2012-15 Smart Thailand (National Broadband) project and the Free Public WI-FI project (in which TOT and CAT will jointly expand free public WIFI coverage across Thailand). 
The additional 4,000 UT sales (300 UTs/month) to BayCity Communications will boost THCOM’s bottom-line only negligibly. Assuming a US$500/UT sales price, we estimate Bt65m in UT sales, equal to about 0.7% of FY12 revenue. Currently, BayCity uses only 200Mbps of the capacity assigned to New Zealand (860Mbps), which represents 0.5% of IPSTAR’s total capacity. 
Action: Our BUY rating stands, premised on: 1) a cheap valuation and 2) anticipation of a turnaround in FY12.