Thaicom

Thaicom Plc (THCOM)
 

Investment thesis: After attending the FY11 analyst briefing yesterday, we remain confident that THCOM’s FY12 operational turnaround is building momentum. We anticipate substantial IPSTAR marketing progress in prime markets. Furthermore, the planned launches of Thaicoms 7, 8 and 9, starting 2014, would mean upside to our DCF-based target price. Our BUY rating stands, premised on a strong FY12 turnaround.    
More IPSTAR progress in China in FY12: THCOM has reached agreement with China Telecom Satellite, its current Chinese IPSTAR partner, for IPSTAR to market directly to end users (it must pay some sales commissions to China Telecom Satellite for the privilege). Moreover, the firm is negotiating bulk bandwidth sales with two potential strategic partners. Management is confident that at least one deal will be inked before mid-year. THCOM will also approach the Chinese govt about the possibility of participating in projects similar to Thailand’s SchoolNet program. 
IPSTAR ramp-up with Chinese bulk sales: Management anticipates at least a 35% IPSTAR utilization rate by YE12, up from 25% at YE11. That number doesn’t include bulk sales to a new strategic partner in China. Under the best-case scenario, the utilization rate could be 42% or more by YE12, driven by increased sales to China (including direct sales and projects for the Chinese govt).
IPSTAR progress in other countries: Aside from Softbank, THCOM signed a deal with a Japanese telco in Dec 2011 and is confident it will close a second with another Japanese Telco in March, which together would take up IPSTAR’s entire bandwidth allocation for that country. A major Indian telco firm is also interested in buying bandwidth. In Australia, THCOM expects to close a deal with another new partner to expand corporate sales. It is also working with big Indonesian and Philippine telco firms for bulk bandwidth sales, similar to the Softbank model.
No spectrum auction for Thaicom 7: Management said that the license THCOM will request from the NBTC for Thaicom 7 is a space segment license, which will not require a spectrum auction (the spectrum and orbital slots belong to the ITU). Hence, Thaicom 7 entails significant value upside, due to low regulatory costs—6% annual license-related expenses against 20.5-22.5% under the current revenue-sharing scheme for the concession.