Thaicom

Thaicom Plc (THCOM) 

 

- Normalized profit to grow yoy and qoq in 2Q15  

THCOM tends to prosper in 2Q15. Sales and service revenues would stay flat qoq at B3.08bn in this quarter because increasing revenues from Thaicom7 (commencing service since November 2014), which has had higher utilization rate from 50% at end-1Q15 to 60% at end-2Q15, would be negated by decreasing revenues from sales of satellite receiver equipment, but gross profit margin would still increase from 39.5% in 1Q15 to 40.2% in 2Q15 as profit margin of the service business is higher than that of sales. In addition, selling and administrative expense would decrease 2.8%qoq due to the company’s cost control policy. Normalized profit is projected to increase 11.3%qoq to B518m (+1.5%yoy), but net profit may drop 2.8%qoq to B524m (+5.4%yoy) because extraordinary profit would lower to B6bn in 2Q15 (THCOM would earn B210m gain from selling of SYNERTONE shares it had received when selling the entire service capacity of iPSTAR in China to the company two years ago, but it would also face Fx loss of B204m from its US Dollar debts as a result of weak THB, versus Fx gain of B74m in 1Q15). 

- Normalized profit to grow on sliding scale in rest of 2015  

Although 1H15 normalized profit would make up only 47.7% of our full-year forecast, we believe normalized profit in 3Q15 and 4Q15 would grow on a sliding scale. A major driving factor is the utilization rate of Thaicom7 that would have increased to 100% at the end of 3Q15 (from clients in India) and 4Q15 is also the first quarter that THCOM fully recognizes benefit from the full utilization rate and the company might also consider selling remaining capacity of other existing satellites (Thaicom6 and iPSTAR), which is not in our forecast. Consequently, overall we estimate THCOM’s profit to grow 30% to B2.1bn in 2015 and 12% next year (due to full-year benefit from Thaicom7 service). However, the forecast has not yet included THCOM’s plan to launch a new satellite, Thaicom8, since 2Q16 onwards; we are waiting to see the company’s presales result, which would become more certain after earnings report; initially, we believe the presales would turn out good since demands for satellite network are still high, especially for HD broadcasting and areas where terrestrial network can not reach, e.g. on planes and ocean-going ships. 

- Upside still high even if TOT terminates iPSTAR contract  

Given the promising profit outlook, in the worst-case scenario that TOT entirely terminates iPSTAR service contract (8% of iPSTAR capacity) and THCOM cannot find a new client for that terminated capacity, fair value will decrease only B4 to B47, which is still high. Reiterate BUY.