Thaicom Plc

Profit not good, time for accumulation though BUY

Thaicom Plc

- 3Q14 profit weakens from extraordinary expenses and rising cost

3Q14 net profit was disappointedly reported at B279m, falling 44%qoq (down

13%yoy) mainly because of net extraordinary expenses of B190m (net Fx gain

minus impairment loss from the Yellow Pages business of its associated company,

CSL (THCOM holds a 42% stake). Excluding the non-recurring items, normalized

profit was B469m, dropping 8%qoq (but up 27%yoy) since selling and

administrative expense rose 7.6% from 2Q14 due to higher allowance for

doubtful accounts and obsolete inventories (resulting in 9M14 SG&A/sales of

18.2%, versus our full-year assumption of 16.8%). Cost of service increased

11%qoq; the company had cost from installation of devices on four of NOK

aircrafts for connecting with iPSTAR for providing an Internet access on the

planes but could book revenue from only one of them in the present. Despite a

full-quarter revenue from broadcasting of 24 digital TV channels via Thaicom 6

satellite, the overall revenue grew only 6.1%qoq in 3Q14, still slower than the

increasing cost.ercial channels + 12 public channels) need to rent satellite

bandwidth capacity.

- Cut FY2014-2015 forecast to reflect extraordinary items

THCOM’s profit is believed to revert to growth in 4Q14 after the non-recurring

items ended in 3Q14, albeit a slight negation from an operation of the new

satellite, Thaicom 7 (the current capacity booking of the satellite is as much as

50%, already exceeding the breakeven point of 40-45%, but most of the clients

are migrated from Thaicom 5 satellite, which will take at least two to three

months to complete). Since 9M14 net profit makes up only 62% of our full-year

forecast (mainly because of the extraordinary items in 3Q14), we slash FY2014-

2015 net profit forecast by 13.2% and 1.8%, respectively (we also cut FY2014-

2015 normalized profit forecast by 3.5% each, as detailed on page 2). Under the

new forecast, FY2014 net profit is estimated at B1.64bn or an increase of 45%,

while the growth of 27% is expected in 2015 after the company can recognize full

benefit from Thaicom7.

- 2015 fair value provides 36% upside. BUY

THCOM still has a chance for continuous profit growth. 2015 fair value (DCF,

9.8% WACC, 1.5% terminal growth) is B51.0 (equivalent to 2015 EV/EBTIDA of

10.8x), which provides a 36% upside. The share price may weaken today in

response to the dull earning result in 3Q14; this is a good chance for

accumulation.