Higher Chinese revenue in FY14-15
Thaicom Plc (THCOM)Investment thesis
Following the 1Q13 preview meeting, we remain bullish on THCOM's 1Q13 and FY13 earnings outlooks. IPSTAR bandwidth sales to China and TOT and the absence of recurring losses at Mfone will boost the FY13 profit. Our BUY rating stands.
Robust 1Q13 profit expected
We estimate a Bt325m net profit for 1Q13, up by 666% YoY and 163% QoQ. Stripping out a Bt113m FX gain, core profit would be Bt212m, up by 198% YoY and 6% QoQ. The expected YoY jump is due to the absence of recurring losses at Mfone, starting 1Q13, and a 29% YoY rise in Thaicom 5 revenue. The modest QoQ increase is because of higher Thaicom 5 and IPSTAR revenues.
The top-line will post a fall of 2% YoY and 4% QoQ in 1Q13, due to the absence of Mfone revenue. Thaicom 5's income will report an increase of 29% YoY and 2% QoQ on higher value-added services and price increases upon contract renewal. IPSTAR bandwidth revenue growth is led by Australian govt's National Broadband Network (NBN). GM will rise to 38% (26.4% in 1Q12 and 34% in 4Q12).
IPSTAR Chinese revenue upgrades from FY14
Under the Definitive Agreement between China Telecom Satellite (CTS), Synertone and THCOM signed on March 29, 2013, THCOM will sell the entire 24% of IPSTAR capacity assigned for China to Synertone. THCOM will start recognizing bulk bandwidth revenue from Synertone in May over the remaining 9.5-year IPSTAR lifespan. We estimate bulk revenue from Synertone at Bt400-500m per annum. There could be upside from estimated 5-10% revenue-sharing from Synertone, based on the actual usage of Synertone's clients, starting 2H13, and from THCOM's 5% holding in Synertone listed on the HKSE.
We maintain our IPSTAR Chinese revenue assumption at Bt250m per annum for FY13, but revised up our FY14-FY15 assumptions by Bt300m per annum. We have upped our IPSTAR utilization rate assumptions by 2% to 43percent for FY14 and by 2% to 49percent for FY15. Hence, our earnings forecast rise 10% to Bt1.55bn for FY14 and 9% to Bt1.81bn for FY15. Our target price rises by 13% to Bt38. We haven't included the potential for upside, noted above.
IPSTAR progress in other countries and Thaicom 6 pre-sales
In India, one contract with a telco (less than 1Gbps) is expected in mid 2013 and another with a big telco (3-4Gbps) by YE13. We expect additional bandwidth purchases by a Malaysian client in FY13. TOT renewed its contract with THCOM in 1Q13, (retroactive to Dec 9, 2012) and will ramp up its usage by another 4% of total IPSTAR capacity, starting 2Q13. Thaicom 6 pre-sales now exceed 40%; its launch is scheduled for 3Q13.
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