Shin Corporation

Shin Corporation Plc (INTUCH)
 

COMPANY UPDATE Investment thesis: Last week, we accompanied INTUCH executives, Mr Kim Siritaweechai, SVP of Portfolio Management, and Ms Tomyantee Kongpoolsilpa, AVP of IR, on an NDR to Singapore. The feedback was positive—expectations of sustained strong FY12 core earnings at ADVANC and a bottom-line turnaround at THCOM. In light of ADVANC’s stretched valuation, we think INTUCH presents a cheaper play on the 3G theme. Our BUY rating is premised on: 1) robust FY12 core profit growth, 2) INTUCH’s deep discount to its NAV, 3) its generous dividend yield and 4) scope for value creation from terrestrial digital TV channels.
A few minor concerns: The fund managers we visited expressed a few minor concerns, such as the risk of 3G auctioning being delayed, the possibility of CAPEX budget overruns for 3G-related costs and the capacity of both ADVANC and INTUCH to maintain 100% dividend payouts, assuming much higher future CAPEX needs (3G costs for ADVANC; a terrestrial digital TV broadcasting network for INTUCH).
Two new business opportunities: The firm plans to bid for licenses to operate 2-3 terrestrial digital TV channels from the NBTC (of a total of 40-50 digital TV channels are planned to go up for auction). INTUCH also plans to launch a venture capital business with initial funding of Bt200-300m that will target investments in telecoms, media and IT. The firm has Bt2.3bn in cash on-hand and could easily increase leverage, so the new investment plans won’t force new capital issuance.
Holding discount expected to narrow: INTUCH’s holding discount to its NAV narrowed significantly after it increased its free float in August 2011 and January 2012, but it has since widened again. Management is confident that the gap will resume narrowing, once the stock re-enters the SET50 index (which requires a free float of at least 20%) in July, enabling mutual fund and pension fund managers with strict investment parameters to buy it. 
At least 100% dividend payout: Management expressed a commitment to at least a 100% dividend payout, underpinned by ADVANC’s commitment of a 100% dividend payout and INTUCH’s 100%, regardless of CAPEX needs.   
Outlook
On May 24, we took INTUCH executives—Mr Kim Siritaweechai, Senior VP Portfolio Management and Ms Tomyantee Kongpoolsilpa, Assistant VP, Group Investor Relations—on a non-deal roadshow to Singapore. We have summarized the key points of the NDR below:
Positive feedback: The fund managers we met with were broadly positive about INTUCH. They anticipate: 1) robust FY12 core numbers, led by ADVANC and a THCOM turnaround, 2) business expansion into digital TV broadcasting, 3) a 3G license on 2.1GHz for ADVANC and 4) a sustained high dividend yield of 8-9%. They expect INTUCH’s holding discount to narrow in the future, due to greater trading liquidity and entry to the SET50 index. Most current holders of the stock said they were happy with both the high dividend yield and the capital gain since INTUCH expanded its free float in August 2011 and January 2012.  
Minor concerns expressed: The most frequently asked questions concerned the five-year business outlook, the company’s plans for new businesses, the progress of 2.1GHz-3G auctioning, the possibility of INTUCH selling down its stake in ADVANC, the long-term dividend payout policy, the sustainability of THCOM’s black bottom-line, IPSTAR marketing progress and the potential for divesting Mfone. There were some minor concerns, such as the risk of 3G auctioning being delayed, the possibility of CAPEX budget overruns for 3G-related costs and the capacity of both ADVANC and INTUCH to maintain 100% dividend payouts in the face of substantially higher CAPEX requirements.