Thaicom

Insignificant financial impact from Mfone filing for bankruptcy

Thaicom Plc (THCOM)

Investment thesis

We believe that the yesterday's share price tumble—triggered by Mfone filing for bankruptcy and the failure of the sale of Mfone—is simply a short-term negative event. It will have only a negligible financial impact on THCOM, which set provisions for its Mfone investment during 9M12 sufficient to cover any further losses through to YE12. We think now is a good time to accumulate the stock ahead of a profit jump in FY13, IPSTAR marketing progress in China and India in 2H13 and future incremental value from Thaicoms 7-9.

Mfone sale canceled and it files for bankruptcy

Shenington Investments Pte Ltd (SHEN), in which THCOM holds 51%, informed THCOM yesterday that Mfone (wholly-owned by SHEN) filed for bankruptcy in a Phnom Penh Court on Jan 9, 2013. In the share purchase agreement signed between SHEN and I.N.T. Management Services Co on Nov 12, 2012, a critical condition was that Mfone would complete debt restructuring with its creditors within 60 days of the signing the agreement (by Jan 12, 2013). Because Mfone failed to complete debt restructuring by the deadline, the sale was canceled. SHEN decided that Mfone should file for bankruptcy.

Insignificant financial impact to THCOM

Because THCOM had set provisions for its investment in Mfone and related expenses during 9M12 sufficient to cover any additional losses through to YE12, we don't think that Mfone's filing for bankruptcy will have a significant impact on its consolidated income statement. Furthermore, SHEN's investment in Mfone has already been written down to an insignificant amount. Assuming the worst-case scenario of additional future provisioning in 4Q12-1Q13, the amount would be small. There might be some legal costs in 1Q13 related to filing for bankruptcy.

Mfone bankrupcy procedures

Management told us that it will take about a month for the court in Phnom Penh to complete bankruptcy proceedings for Mfone. Then, the court will appoint an administrator to sell Mfone's assets, the proceeds of which will go to creditors. Once the firm is legally bankrupt, neither THCOM nor SHEN will be liable for any costs, according to management. We factored out the Mfone investment and its recurring losses from our financial model, effective FY13. Our earnings forecast for this year stands unchanged