LT outlook burnished by Internet Data Center, 3G BUYCS 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
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.