Thaicom

Thaicom Plc (THCOM)

Investment thesis
Following the preview conference call with THCOM, we expect solid YoY growth in 1Q14 core earnings, but a QoQ decline, caused by start-up expenses for Thaicom 6 and overlapping costs for interim capacity during client traffic transference to Thaicom 6. Our BUY rating stands, premised on a solid FY14 earnings outlook and scope for upside from Thaicom 7 and revenue-sharing from Synertone.  
Expect robust YoY 1Q14 core profit growth (weaker QoQ)
We estimate a Bt290m net profit for 1Q14, down 13% YoY but up 1% QoQ. Stripping out a Bt50m FX gain in 1Q14 and other extra items in 1Q13 and 4Q13—core profit would be Bt240m, up 49% YoY but down 32% QoQ. The expected YoY core earnings rise is due to a full quarter of no Mfone loss against 1.5 months of no Mfone loss in 1Q13 (THCOM stopped realizing Mfone losses on Feb 15, 2013), higher revenues for conventional satellites, IPSTAR and LTC and lower SG&A expenses. 
The assumed QoQ core profit decline was led by Thaicom 6 depreciation and interest expenses since Feb 2014 and the continued transponder-leasing cost of interim capacity during Feb-March 2014 while client traffic was transferred from the interim satellite to Thaicom 6. We estimate Bt155m in additional expenses tied to Thaicom 6 during Feb-March 2014—Bt110m (depreciation) and Bt45m (interest). Thaicom 6’s jump in expenses would have outweighed the effect of lower SG&A expenses (staff bonuses were paid in 4Q13) and a modest rise in the top-line.
We assume that conventional satellite revenue rose by 42% YoY and by 4% QoQ (due to a 5% increase in Thaicom 6’s utilization rate in 1Q14). IPSTAR’s bandwidth income should have increased by 30% YoY and 6% QoQ, led by a full quarter of receipts from China (which started Oct 15, 2013) and greater revenue from NBN (Australia) and MEASAT (Malaysia). LTC’s revenue and profit should have improved YoY and QoQ, thanks to greater subscribership and seasonality.
Service costs would have jumped by 41% YoY and 14% QoQ, led by Thaicom 6 expenses and the overlapping costs for interim capacity. We assume GM of 33% for 1Q14 (38.9% in 1Q13 and 39.6% in 4Q13).
Scope for upside—Thaicom 7 and Synertone revenue-sharing
We expect Thaicom 7 to launch into orbit in 3Q14 and revenue recognition to start in Nov or Dec 2014. Based on Synertone’s Bt2.8bn in deals with two clients that were agreed in Feb 2014 and an assumed net margin of 50%, we estimate that THCOM’s 8% revenue-sharing on Synertone’s revenue could add about Bt115m (~8%) per annum to our consolidated net profit forecasts.