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Thaicom 6 launches successfully

Thaicom Plc (THCOM)

What's new?

THCOM announced that its Thaicom 6 satellite launched successfully into orbit at 78.5 Degrees East on Jan 6. It was delivered by a Falcon 9 rocket (Space Exploration Technologies Corp) from Cape Canaveral, Florida. Thaicom 6 was built by Orbital Sciences Corp of the US and comprises 33 transponders—24 C-band and 9 Ku-band. Its main clients will be digital TV operators. The total investment cost was US$160m, of which $137m was funded by debt. Thaicom 6 is the final satellite to launch under a Build-Transfer-Operate concession (with the ICT Ministry). All future satellites will operate under licenses.

THaicom 6 has presold 66% of its capacity

Of the 66% of transponder capacity that has been booked so far, 64% was presold to Thai broadcasters and 2% to African clients. Management says that 64% of capacity is allocated to Indochina, which would seem to imply that the remaining free bandwidth is to be sold to clients in Africa or elsewhere. THCOM guides that the firm will ink new deals with African buyers in 1H14. Note that following a month or so of testing, the contracts for transponder usage will become effective gradually over a period of months, not all at once.

Satellite has surpassed EBIT break-even

We expect Thaicom 6 to start contributing revenue in Feb 2014, following testing and adjustments. The satellite's EBIT break-even level is 50% capacity utilization (and it has already booked 66% of its transponder capacity), so we expect it to deliver earnings within three months of its launch (assuming that contracts become effective for 70% of the booked capacity within three months of launch).

Incremental value of Thaicom 6 factored in

We factored the value of Thaicom 6 into our earnings model and target price in 2012. Our BUY rating stands with a YE14 target price of Bt46, premised solid FY14 net earnings growth of 35% and core earnings expansion of 28%, led by receipts from Thaicom 6, a full year of income from China for IPSTAR and revenue from Thaicom 7 in 2H14.

There is scope for upside from Thaicom 7 (scheduled to launch at around mid-2014), increased IPSTAR usage by the Australian National Broadband Network (NBN), anticipated new deals for IPSTAR capacity with Indian, Indonesian and Philippines buyers and new presales contracts with African clients for Thaicom 6 bandwidth.




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