st

Jasmine Broadband Internet  

Infrastructure Fund 

Investment thesis

 

We have downgraded JASIF to HOLD due to its mounting existential business risk after TTTBB’s license expires in 2026. With JAS dropping its 900MHz license, we think that the NBTC will definitely not renew TTTBB’s license. Uncertainty arises as to how to locate a new client who leases huge capacity of optical fiber cables (OFC) at the premium prices from JASIF (such as TTTBB’s case) in 2027. We have now assumed lower OFC sales and rental rates in 2027 and lowered our DCF-based target price to Bt8. We think that the high 2016 yield of 10.8% must be compensated by a significantly lower yield of 2-3% after 2027. 

JAS dropped 900MHz license—negative for TTTBB license 

JAS Mobile Broadband Co., Ltd. is a subsidiary of JAS, which won slot one of the 900MHz license at Bt75,654m and has decided to drop that license by failing to pay its first payment (along with bank guarantees for remaining payments) on the deadline of 21 Mar 2016. Hence, the NBTC will investigate JAS’ qualifications and its subsidiaries as being existing licensees of broadcasting, TV and telecom businesses. 

Assuming the likely-case scenario that JAS and all of its subsidiaries will be blacklisted from bidding on any new future licenses, and from renewing or extending existing business licenses, we believe that all of its existing 27 business license renewal applications will be rejected once they expire. One of them is the TTTBB 20-year Type-3 business license granted by the NBTC (which is due to expire on 22 Feb 2026) to operate voice, data and broadband Internet services. We expect the NBTC to terminate TTTBB’s license once it expires in 2026. 

What if TTTBB fails to have its license renewed after 2026? 

TTTBB is the sole sponsor of JASIF’s rental income for two lease contracts—the 11-year contract that ends in Feb 2026 (80% of total OFC capacity) and the three-year contract that ends in Feb 2018 (20% of total capacity and renewed every three years). If TTTBB’s license were not renewed by the NBTC beyond 2026, we believe that it would pose a long-term risk to JASIF’s rental income stream after 2026. The uncertainty arises as to how JASIF will locate any client with such a huge OFC capacity lease (980,000 core km) and the high rental fees (Bt5-6k/core km/annum for the first contract and Bt9-10k for the second). It is a business existential risk beyond 2026 for JASIF. 

Assuming the unlikely worst-case scenario that TTTBB’s license were blocked from renewal in 2026 and there were no clients to replace TTTBB beyond 2026 at all, we would take out the perpetual terminal value after 2026 and our JASIF’s DCF-based target price would decline to Bt6.60. Our previous projection for 2027 assumes that 980,000 core km of OFC and the 30% YoY decline in rental rates for both contracts. We have adopted the likely case scenario that OFC leased to the new client is reduced to 400,000 core km and the rental rates for both contracts decline by 60% (to Bt3k for the first contract and Bt5.3k for the second one) in 2027. Hence, our target price declines 35% (to Bt8). We did sensitivity analysis between two variables and our target price and dividend yield