Thaicom

Thaicom Plc (THCOM)
 

What’s new? Local newspapers reported that Ms Suphajee Suthumpun, the CEO of THCOM, said the firm will conclude the sale of Mfone, its Cambodian telecoms unit, soon. THCOM has a 51% stake in Shenington Investments Pte Ltd, the holding company that owns 100% of Mfone and 49% of Lao Telecommunications Co Ltd (LTC). Mfone is bleeding red ink. Talks are ongoing with unnamed potential buyers. According to Ms Suphajee, if THCOM were to fail to get a deal, it would look for a strategic partner.
With regard to the TDRI’s recommendation that the satellite industry be liberalized, she said if liberalization were to go ahead, she would negotiate with the govt to amend the firm’s revenue-sharing obligations in order to maintain its competitiveness. THCOM currently pays an average of 20.5% of revenue to the ICT Ministry, scheduled to increase to 22.5% in Sept 2016.
TP to be upgraded on Mfone sale: If THCOM were to sell Mfone, we estimate that its annual core earnings would improve by about Bt500m, or Bt0.5/share. THCOM’s share of the net loss of its Cambodian subsidiary is currently about Bt125m/quarter. If the firm were to be divested in April, our FY12 core earnings forecast would jump 70% (Bt330m), or Bt0.3/share. We preliminarily estimate Bt4-5/share upside to our current DCF-based YE12 target price. Note, however, that as yet there is no clear buyer and the CEO has offered a second scenario of taking on a strategic partner. So, the divestment is a matter of speculation at this stage.
Mfone divestment worthwhile, even at a loss: We reiterate our view that even if the only option were to sell Mfone at loss (which is the most likely scenario), the firm should divest the Cambodian cellular operator.   
Little concern about satellite industry liberalization: We doubt that this govt will liberalize the satellite industry any sooner than it is legally required to do so under the AEC treaty. The AEC comes into effect in 2015, but we aren’t sure whether the satellite industry must be liberalized by that time. However, in the unlikely scenario that the industry is liberalized, we are skeptical that the concessions could be amended under the current legal framework.
Action: Our BUY rating stands, premised on: 1) a cheap valuation (a YE12 PBV of 1.2x) ahead of a bottom-line turnaround and 2) upside from the future launches of Thaicoms 7-9. We will factor in the incremental value of Thaicom 7 in 2H12.