Jasmine International

Jasmine International Plc (JAS)

To establish B50-70bn infrastructure fund
According to the JAS's BOD meeting yesterday, the following issues were approved:
1) The BOD has approved to proceed an establishment of an infrastructure fund for
Broadband Internet business, worth B50-70bn, allowing the company and/or the
subsidiaries to sell or lease its own nationwide broadband network, comprising:
optical fiber cable of approximately 610,000 core km; access node of approximately
16,000 nodes; and cables that link to the entire customers. The book value of these
assets was approximately B10bn. 2) The BOD has approved the company /
subsidiaries to lease back, lease, or sublease the assets from the infrastructure fund
to continue its business operation. 3) The BOD has approved company / subsidiaries
to invest for one-third of the total issued investment units of the infrastructure fund.
4) The proceed from the infrastructure fund will be used for Broadband Internet
business expansion which also includes Fiber Optic FFTX (the latest technology with
the highest speed and providing 2x larger ARPU from common customers), aiming
for a rapid customer growth. For Fiber Optic FTTX, the company has targeted to
increase its customer from 1% toward 50% in approximately 3 years.
- B27bn addition extraordinary profit if established
A conclusion on the IFF structure has not been reached. However, we make our
assumption based on BTS’s case, projecting the fund establishment to be a sale of
future income from assets, in this case, a sale of network rental fee income of a 15-
year contract of Triple Three Broadband or TTTB (for the current business structure,
see page 2) to IFF of JAS that would, conservatively estimated, have a size of the
minimum of B50bn (probably a fair value when considering the book value and
dividend for investors). According to our assessment, effects on future financial
statement of the company are as follows.
1) JAS will earn non-recurring extraordinary profit before tax of around B26.7bn
from the above-mentioned asset sale. The selling value of B50bn subtracting B10bn
asst cost will result in a profit of B40bn, but the profit will be decreased to one-third
as it is a related transaction between JAS and IFF (JAS hold one-third of it).
2) JAS's profit will decrease from current forecast by B694m/year. After establishing
IFF, JAS has to rent the assets at the fee of B4bn/year while it would earn only
B3.3bn compensation from decreasing maintenance cost and depreciation (after
transferring the asset to IFF). Interest income will increase as the company would
bring the remainder of it money after investment in the fund (the remaining twothird)
to invest (under an assumption for the company to bring remaining cash after
pay debt to make short-term investment, without including additional value from
the FTTx network expansion plan). Moreover, JAS will also receive share of profit
from the fund, as well as IFF management income (for details of the assumption,
see page 2).
- Fair value (excluding fund) with 25% upside. Reiterate "BUY"
Value added from the fund establishment, excluding long-term FTTx investment is
estimated at B1.6 (additional value from an asset sale, which was higher than the
book value of B3.6/share, subtracted by B2.0/share discount from recessing
earnings under conservative method, excluding the long-term investment). We
reiterate "BUY" and keep fair value at B9.8 for its 25% upside from the current
price. We exclude additional value from IFF, as we are waiting for clear conclusion of
the fund structure and SEC approval on the establishment.