Thaicom

"Framework agreement" signed with Vast for IPSTAR sales in China

Thaicom Plc (THCOM)

Potential new IPSTAR sales partners in China

THCOM reported to the SET yesterday that on Dec 30 it had inked a

three-party framework agreement with China Telecom Satellite

Communications Limited (CTS, a state controlled telco that is its official

partner in China) and Vast, a wholly-owned subsidiary of Synertone

Communication Corp (Synertone) for Vast to act as sales partner for

IPSTAR bandwidth sales in China. Note that a framework agreement is

not a contract, but sets the broad parameters for a future contract.

Under the agreement, Vast would have the right to use IPSTAR

gateways in China until the expiry of the IPSTAR satellite. Assuming

that a contract is signed: 1) THCOM will sell all IPSTAR capacity

allocated to China to Synertone, 2) Synertone will issue consideration

shares to THCOM and 3) Vast will share revenue from IPSTAR

bandwidth sales with THCOM. The three parties plan to sign a contract

by March 31, 2013.

A signed contract would be a big positive for THCOM

IPSTAR's bandwidth allocation to China is 9.2Gbps (24.7% of its total

capacity). There hasn't been any marketing progress in that country for

the last five years. Revenue-sharing from Vast would mean top-line

upside for THCOM. The equity stake in Synertone should strengthen its

capability to do business in the Chinese market.

Scope for upside to IPSTAR's utilization rate, FY14 onward

Our current mean FY13 IPSTAR utilization rate assumption of 35%

includes China (5%), India (2%), Australia and Malaysia and Thailand

(3%). We remain comfortable with our assumptions for now. Assuming

that a contract were signed with Vast and that the Chinese partner

made good sales progress, there would be upside to our FY14 IPSTAR

utilization rate assumption (we currently assume that of the 24.7% of

bandwidth allocated to China, only 4% will be utilized in FY14).

Our sensitivity analysis suggests that every 1% increase in IPSTAR's

utilization rate would boost THCOM's FY14 revenue by 1.7% (Bt166m)

and its FY14 net profit by 1.2% (Bt16m) in excess of our current model

(assuming a 10% net margin for bandwidth resold by Vast). If the FY14

utilization rate for China were to rise to 8%, our current FY14 revenue

and net profit projections would be boosted by 6.7% and 4.7%,

respectively.