CS Loxinfo

LT outlook burnished by Internet Data Center, 3G BUY

CS Loxinfo Plc (CSL)

Lift 2013-2015F by 4-10percent from growing Internet Data Center and cost

control over directory business

Indirect but likely sizable benefit from 3G from sister company ADVANC

LT growth outlook supports DCF as new valuation method: raise TP to Bt16

and upgrade to Buy

Lift 2013-2015F by 4-10%. To make up for the slow growth of its internet provider

business (largely for the corporate segment) and weakening directory business, CSL

has built a new growth driver around Internet Data Center (IDC) operations. Revenue

from the IDC business grew at a 30% CAGR over 2010-2012 to Bt156mn (or 8% of total

revenue from the internet segment), propelled by rising demand from corporate

clients. CSL will invest ~Bt350mn this year to add ~55% capacity to IDC, which it expects

to be fully utilized by 2016F based on current trends. In recognition of this and its

control over costs in the directory business that will reduce losses, we are upgrading

2013-2015F earnings by 4-10%. We look for 26% earnings growth in 2013F and 13% in

2014F, with upside from collaboration with ADVANC for cloud computing services.

Indirect but likely sizably benefit from 3G. The launch of 3G-2.1GHz commercial

services is scheduled for 2Q13F and CSL is poised to benefit via its partnership with

sister company ADVANC, the biggest telco with a subscriber base of 36mn. The main

boost will be given to the content business, which ups data usage and is thus

supported by telcos, and cloud service for ADVANC's 3G smartphone users. ADVANC has

already announced that it will outsource cloud service to CSL, but since neither

ADVANC nor CSL could quantify the size of this business, we leave it as upside risk.

Improving LT outlook, lift TP to Bt16 based on DCF. Backed by the growth trend of

the IDC business and the potentially large benefit from the upcoming commercial

launch of the 3G-2.1GHz service, CSL's long-term outlook has improved substantially.

We thus view a change valuation method to DCF (WACC 10.2%, terminal growth 1%)

from PE multiple as justified. The change in method raises TP to Bt16 from Bt9. At the

new TP, CSL is trading at 2013F PE of 19x, which is equal to the industry's ten-year

average.

Upgrade to Buy. Backed by the improving LT outlook, upside risk from cloud service

with ADVANC's 3G-2.1 GHz and generous dividend yield of 5.3%, we upgrade our rating

to Buy from Neutral.