Thaicom

Thaicom Plc (THCOM)
Investment thesis
The delay to the signing of a new contract with a big Indian telco to 1H13 has only a marginal impact on THCOM’s FY13 revenue and bottom-line profile. We maintain our mean FY13 IPSTAR utilization rate assumption unchanged at 35%. The share price correction presents a good opportunity to accumulate the stock. Our BUY rating stands, premised on an FY13 profit jump and future value from Thaicom 7.
Two rumors about THCOM yesterday
The first rumor was that the signing of a new contract with a big Indian telco client for about 4Gbps (11% of IPSTAR’s capacity) had been canceled. The second was that the signing of a contract with TOT for usage extension and additional bandwidth had been delayed to 1H13.
Contract signing delayed—not scrapped
THCOM told us yesterday that the contract signing with the big Indian telco is likely to be delayed to 1H13. The sales volume and pricing terms have already been agreed with the Indian client.
With regard to the second rumor, THCOM has not yet signed the new contract with TOT for the usage extension because TOT’s board and president recently changed. The contract expired on Dec 10, 2012, but TOT continues to use 1.5Gbps (4% of IPSTAR’s capacity). The contract signings for both TOT’s existing 1.5Gbps of usage and an additional 1.5Gbps are likely to be delayed to 1H13. 
FY13 IPSTAR utilization rate to be maintained
We remain comfortable with our current mean FY13 IPSTAR utilization rate assumption of 35%, despite the delay to the contract signing with the Indian telco to 1H13. The additional 10% utilization rate in our FY13 model will come from China (5%), India (2%), Australia and Malaysia and Thailand (3%). Of the 4Gbps allocated to the Indian client, we assume a gradual utilization rate ramp-up from 9M13 through FY16 of 1Gbps for each year (3% annual IPSTAR utilization rate expansion).
We conducted a sensitivity analysis between IPSTAR’s utilization rate and THCOM’s revenue and net profit. Every 1% change in IPSTAR’s utilization would impact THCOM’s annual revenue by Bt162m and its annual net profit by Bt32m (assuming a 20% net margin for the IPSTAR satellite). Assuming only a six-month delay to revenue recognition in FY13, it would impact FY13 income by 1% (Bt80m) and FY13 net profit by 2% (Bt16m). Under the worst-case scenario where the contract with the Indian telco is canceled, FY13 revenue would decline by 2% (Bt122m) and FY13 net profit by 3% (Bt24m) and FY16 revenue by 15% (Bt1.7bn) and FY16 net profit by 12% (Bt347m).