Shin Corporation

Shin Corporation Plc (INTUCH)

Investment thesis: In light of ADVANC’s stretched valuation on the 3G run, we think INTUCH offers the best alternative 3G play for the time being. We believe its share price will strengthen further during the next six months toward 3G auctioning, so advise holding onto the stock, despite its 86% share price rally since June 2011. Our BUY rating stands, premised on: 1) robust FY12 core profit growth, underpinned by ADVANC and THCOM, 2) 3G developments and 3) a good yield of 7%.
Solid 1Q12 earnings: We estimate a Bt3.2bn net profit for 1Q12, up 24% YoY but down 64% QoQ. Core earnings should have risen 24% YoY and 10% QoQ. Disaggregated by its business units, the 22% YoY rise in ADVANC’s core profit is led by the headline corporate tax cut from 30% to 23%, effective Jan 2012, strong rises in both voice and nonvoice revenues, a decline in overall OPEX and a tumble in interest expenses. With regard to THCOM, we estimate core earnings of Bt95m for 1Q12, against a Bt153m core loss in 1Q11, due to stronger revenues for Thaicom 5, IPSTAR and the Lao telephone unit.   
Robust FY12 core profit growth of 26%: ADVANC’s equity earnings contribution remains the key driver of INTUCH’s solid FY12 core profit expansion, driven by a 25-30% rise in nonvoice revenue (led by strong mobile Internet growth) and a 10-15% increase in sales revenue (chiefly smartphone sales growth). With regard to THCOM, we anticipate various earnings catalysts/ surprises this year, including a bulk sales deal in China, the divestment of Mfone, revenue upside at the Lao telephone unit and more direct sales in China.
Digital TV plan: The firm plans to bid for a digital TV license when the NBTC starts auctioning them, possibly in 2H12 or 2013. A terrestrial TV broadcasting platform would be another potential earnings channel. 
YE12 target price revised up 23%: We have upped our YE12 NAV-based target price by 23% to Bt78.50 to factor in: 1) an 11% upgrade to ADVANC’s YE12 DCF-based target price (from Bt180 to Bt200) and 2) the abolishment of our 10% discount for INTUCH being a holding company, in light of more 3G visibility.
Outlook
Estimate solid 1Q12 earnings: We estimate a Bt3.2bn net profit for 1Q12, up 24% YoY but down 64% QoQ. There were two major extra items booked in 4Q11: 1) a Bt7.3bn gain from the 2% sale of 2% of the shares in ADVANC to Singtel and 2) Bt1.4bn in deferred tax provisions among the group. Stripping out those extra items, core earnings would have risen by 24% YoY and 10% QoQ. The YoY increase was led by ADVANC’s core earnings growth and THCOM’s turnaround to profitability.
Disaggregated by business unit, ADVANC’s and THCOM’s 1Q12 core earnings will post solid YoY and QoQ rises. We are now more bullish on ADVANC’s 1Q12 earnings—our upsized estimate is Bt8.1bn (we previously expected Bt7.8bn), due to expanded expectations for nonvoice revenue. The projected 22% YoY rise in its core earnings was driven by: 1) the headline corporate tax cut from 30% to 23%, effective Jan 2012, 2) strong increases in both voice and nonvoice revenues, 3) a decline in overall OPEX and 4) a tumble in interest expenses. With regard to THCOM, we estimate a Bt95m core profit for 1Q12, against a Bt153m core loss in 1Q11, due to stronger revenues for Thaicom 5, IPSTAR and the Lao telephone unit. IPSTAR will be boosted by the recognition of income from the Australian National Broadband Network (NBN) program and MEASAT of Malaysia in 4Q11, additional bandwidth sales to new Japanese telecom firms—KDDI in December 2011 and NTT Docomo in March 2012—a 50% sales price increase for Japanese clients, effective April 2011, and a ramp-up in bandwidth usage in India.