Intouch Holdings

INTUCH’s share price implies a 23% discount to its net asset value (NAV)—based on the market prices of its stakes in ADVANC and THCOM—and a 30% discount to our DCF-based NAV. FY15 earnings will be driven by ADVANC’s service income recovery (led by domestic consumption growth and improved network quality) and THCOM’s revenue expansion (the sale of remaining capacity of Thaicom 6, Thaicom 7 and IPSTAR). Our BUY rating stands, premised on an FY15 bottom-line recovery, a good FY15 dividend yield of 6.7% and upside from bandwidth auctioning (possibly in July 2015) and Thaicom 8’s launch (in 1H16).

Insights into 3Q14—a modest YoY rise in core profit 

We estimate a Bt3.6bn 3Q14 net profit for INTUCH, up by 6% YoY and 3% QoQ. Excluding extra items—FX, an impairment for ITV and a proportionate equipment write-off for ADVANC—its core earnings would be Bt3.8bn, up by 6% YoY and 1% QoQ. Its assumed YoY core profit growth was driven by ADVANC and THCOM. 

With regard to ADVANC, we estimate Bt9.09bn in core earnings for 3Q14, up by 8% YoY and 4% QoQ, led by a modest service income recovery and substantially lower regulatory costs, which should have outweighed the effect of heavier OPEX. Due to improved 3G network quality and greater low-end smart phone sales, service income should have risen in 3Q14, despite seasonality. Service income (excl. IC) in 3Q14 is assumed to have increased by 3% YoY and 1% QoQ—the second straight quarter of both YoY and QoQ growth (details in ADVANC report, Oct 3, 2014).

For THCOM, we estimate a Bt520m core profit for 3Q14, up by 42% YoY and 2% QoQ. The assumed YoY core rise was led by recognition of Thaicom 6 revenue (Feb 2014), IPSTAR Chinese receipts (Oct 2013), one-time revenue-sharing income from Synertone (new Synertone bandwidth sales to a client), one-time user terminal (UT) revenue and greater bandwidth sales to NBN Australia and increased LTC receipts. The assumed QoQ rise was due to greater Thaicom 6 income (a higher mean utilization rate and value-added solutions) and IPSTAR bandwidth receipts (led by NBN Australia and Softbank Mobile Japan). See details in THCOM report, Oct 29, 2014.

ADVANC’s revenue growth and THCOM’s future bandwidth sales 

We expect ADVANC’s 4Q14 service income to post a 3% YoY increase, led by a recovery in consumption spending and the firm’s bundled marketing campaign. In FY15, THCOM should make new IPSTAR bandwidth sales to Malaysia. India, Australia, Indonesia and the Philippines and book additional sales of Thaicom 6’s remaining capacity (which is allocated to Africa) and the remaining 50% of Thaicom 7’s capacity.