Thaicom

IPSTAR China revenue to commence in April 2013

Thaicom Plc (THCOM)

Investment thesis

Following the 2012 analyst meeting, we believe that IPSTAR will make good sales progress in China, India and with the TOT this year. Moreover, there won't be any more significant provisioning for Mfone (which is being liquidated) in FY13. Our BUY rating stands, premised on an FY13 profit jump and a cheap valuation—an FY13 EV/EBITDA of 6.8x against a mean of 9x.

Mfone entered insolvency proceedings

According to a THCOM filing to the SET, on Feb 14, 2013, a court in Phnom Penh opened insolvency proceedings for Mfone (THCOM has a an indirect 51percent stake in Mfone through its holding in Shenington Investments Pte Ltd). As such, THCOM won't have to recognize recurring losses for its Cambodian subsidiary this year (it set provisions in FY12 to cover Mfone losses and other related expenses through 1Q13). There may be some modest legal fees related to winding up Mfone in 1Q13. Note that we have re-adjusted our 4Q12 core profit forecast to Bt199m (up by 135% YoY and 121% QoQ), to factor in Bt72m in 4Q12 one-off extra expenses related to Mfone.

IPSTAR revenue from China to commence from April 2013

Under the Framework Agreement between China Telecom Satellite (CTS), Synertone and THCOM, THCOM will sell the entire 24% of IPSTAR capacity assigned for China to Synertone. The CEO expects a Definitive Agreement to be signed by March 2013 and revenue to commence in April 2013. The CEO said that THCOM will recognize revenue from Synertone in two ways: 1) a monthly guaranteed minimum payment to THCOM regardless of usage (THCOM will recognize this revenue from April 2013 through to concession expiry in 2021) and 2) quarterly revenue-sharing from Synertone based on the actual usage of Synertone's clients (which will be small).

In India, the contract with a big Indian telco is currently being reviewed by the Indian authorities ahead of expected approval. We also anticipate a contract signing with another big Indian telco in 1H13. Note also that TOT has submitted a letter to THCOM extending the contract for IPSTAR usage (the original contract expired in December 2012) and requesting additional bandwidth. Furthermore, Australia's NBN is now using more than its minimum bandwidth commitment.

YE13 IPSTAR utlization rate (based on cash receipts) of 59%

The firm guides for a 59% IPSTAR utilization rate (based on cash receipts) at YE13, up from 50% at YE12 (including China), driven by further bandwidth sales to TOT (3-4%), India (4-5%) and others (1-2%). We continue to assume a mean IPSTAR utilization rate (based on actual usage) of 35% in FY13 and 41% in FY14. Thaicom 6's presales were 38% at YE12 and should reach 50% by launch.