Thaicom

Thaicom Plc (THCOM)

Investment thesis: Following the 2Q12 analyst meeting, we remain confident in THCOM’s FY12 turnaround story and FY13 profit growth profile, underpinned by IPSTAR marketing progress in India and Thailand and sustained Thaicom 5 sales growth. If the firm were able to seal a deal to sell Mfone by its YE12 target, there would be scope for upside. Furthermore, Thaicom 6 is tentatively slated to launch in mid 2013. Our BUY rating stands.    
Mfone sale to be concluded by YE12: The analyst meeting was the first occasion where the CEO set a specific timeframe for divesting Mfone. If the firm failed to sell its loss-making Cambodian mobile operator, it would terminate the operation to stop the bleeding. THCOM has been conducting due diligences on two potential buyers, one of which already operates a cellular network in Cambodia. In light of the deeper QoQ telephone gross loss in 2Q12, we expect action this year—either the sale or the winding up of Mfone. 
Target price upgrade on proof of Mfone sale: THCOM’s share of the Mfone net loss is currently about Bt130m/quarter. If Mfone were to be divested by YE12, our FY13 core earnings forecast would jump by 62% to Bt1.3bn (Bt0.47/share). We estimate Bt6-7/share upside to our current YE12 target price. Even selling Mfone at a loss or terminating the Mfone operation (which would result in a one-time impairment) would be preferable to holding onto the nonperforming business in Cambodia.         
Thaicom 6 pre-sales: Thaicom 6’s current presales total 18% of capacity. The firm targets 30% bookings for the satellite by its launch mid next year. Current customers include PSI, RS and GRAMMY, each utilizing two transponders. TRUE is currently in talks to lease Thaicom 6 transponders to provide high-definition channels for its pay-TV operation.  
IPSTAR progress in India & Thailand: The firm recently signed a contract with an Indian business partner, Airtel Bharti, to share the Indian gateway. Airtel will use 1Gbps (of 6-7 Gbps capacity allocated to India). IPSTAR is also close to signing another contract with another Indian telco, which would use 80-100% of the remaining capacity assigned to India (about 2Gbps). Furthermore, TOT will extend its IPSTAR contract before its existing one expires on Dec 10, 2012.