Shin Corporation

Shin Corporation Plc (INTUCH)

3Q13 net profit drops from 3G investment
INTUCH's 3Q13 net profit was B3.4bn, dropping 7.8%qoq. Normalized profit fell
by 11%qoq. THCOM's normalized profit (INTUCH holds 41.14% stake,
consolidated) rose by 4%qoq due to an increase in usage of iPSTAR satellite, and
income from customers of Thaicom 6 that use the satellite rented by THCOM, as
Thaicom 6 launched one quarter late (will launch Thaicom 6 in 4Q13). However,
profit from ADVANC (INTUCH holds 40.45% stake, share of profit), which is
INTUCH's main source of profit, decline, as expenses from hurried investment and
adverstisement cost of new 3G network under 2.1 GHz license significantly
increased. Decrease in share of profit (from 25% under concession to 5.25%
under new 3G license) could not compensate for the expense (only 10.5 million
subscribers or only 27% of total subscriber base have been migrated). Moreover,
ADVANC's 3Q13 service revenue stayed flat from 2Q13 due to decelerating
purchasing power.
- 4Q13 profit to prosper along with ADVANC and THCOM
INTUCH's 4Q13 profit is likely to rebound and make the year high, due to the
following:
1) ADVANC's profit is projected to improve due to high season, and revenue
sharing cost is likely to drop more significantly than 3Q13, as there have
been 10.5 million subscribers of new 3G network, projected to reach
ACVANC's target of at least 12 million new 3G subscribers within end-2013.
2) THCOM's profit is projected to improve, as total income from capacity of
iPSTAR satellite in China would be booked. Moreover, income from some
customers of Thaicom 6 who did not use the Thaicom 6 in 3Q13 will be
booked in 4Q13.
However, we revised down FY2013-2014 profit forecast of ADVANC and THCOM
due to higher-than-expected advertisement cost and possibly lower-thanexpected
income from iPSTAR satellite in China. INTUCH's net profit forecast is
revised down by 14% in 2013 and 17% in 2014. Under the new forecast,
INTUCH's FY2013 net profit is projected at B15bn, growing 6.2%yoy. INTUCH's
FY2014 net profit is projected to grow 15.4%yoy, as ADVANC would provide 3G
network for a full year, reducing revenue sharing cost from 2013.
- 61% upside and 5.4% FY2013 dividend yield. "BUY"
With 2014 fair value (NAV) of ADVANC at B315 and of THCOM at B50, we derive
INTUCH's 2014 fair value at B124/share, implying 61% upside. As ADVANC's
2H13 dividend might be lower than EPS. Impaired investment from DPC has been
booked in ADVANC's financial statement, pressing retained earnings in the
company financial statement and affecting the dividend that would be paid to
INTUCH. Thus, INTUCH 2H13 dividend yield is projected to fall from 3.1% in 1H13
to 2.3% (decreasing FY2013 dividend yield to 5.4%). However, INTUCH's share
price has dropped by 8% in one week, possibly reflecting dreadful profit and
dividend. We recommend "BUY" for long-term investment.