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Thaicom

Scope for upside from new IPSTAR clients and debt refinancing in 2H14 Investment thesis

Thaicom Plc (THCOM)

Following our recent meeting with the CFO, Mr Vuthi Asvasermcharoen, we remain confident about 2Q14 earnings growth, led by a usage ramp-up at Thaicom 6, greater IPSTAR usage and LTC revenue and the absence of costs for interim capacity following the completion of client transference to Thaicom 6. Our BUY rating stands, premised on a solid FY14 earnings profile and scope for upside from debt refinancing for Thaicom 7 and new IPSTAR markets in 2H14.

Insights into 2Q14—solid YoY and QoQ core profit outlook

We estimate a Bt430m net profit for 2Q14, up by 126% YoY and 8% QoQ. Excluding a Bt15m FX loss, core profit would be B445m, up by 22% YoY and 29% QoQ. The expected YoY core rise is due to revenue from Thaicom 6 (started Feb 2014), IPSTAR China income (started Oct 15, 2013) and greater receipts from IPSTAR NBN (Australia) and LTC.

The assumed QoQ core profit rise was led by Thaicom 6 income, IPSTAR NBN and LTC receipts and the absence of transponder-leasing costs of interim capacity in 2Q14 (against two months in 1Q14). We expect conventional satellite revenue to post a rise 61% YoY and 13% QoQ, led by Thaicom 6's utilization rate increase from 50% at end-March to 66% at end-June 2014. IPSTAR bandwidth income should have expanded by 26% YoY and 6% QoQ, led by NBN usage in excess of the contracted minimum. LTC's revenue should report a rise of 35% YoY and 7% QoQ on ARPU growth (led by nonvoice income).

Thaicom 7's orbital launch scheduled for Sept 2014

After Thaicom 7's launch, we expect revenue to start in Oct or Nov 2014. Its presales are now 40% and are anticipated to ramp up to 50-60% by launch. Then, THCOM plans to migrate telecom clients currently using four Thaicom 5 transponders for backhaul to Thaicom 7 in order to free up Thaicom 5 capacity for sale to TV broadcasters (clients that yield fatter margins). Moreover, lower blended regulatory costs will manifest in the income statement, starting 4Q14, when Thaicom 7 starts operating on an NBTC-issued license (5.25% under the licensing regime against 20.5% concession fees).

Scope for upside—debt refinancing & new IPSTAR deals

In 2H14, the firm plans to issue Bt4-5bn in bonds with 5- to 7-year maturities to refinance US$170m in debt for Thaicom 7. The bond issue would bring down the cost of debt of Thaicom 7 from 10% to about 5%, effectively a saving of Bt85m/annum, starting 4Q14. Also during 2H14, THCOM expects to ink new IPSTAR contracts in India (an existing client) and in Indonesia and the Philippines (new clients) and conclude more sales in Africa for Thaicom 6 in 2H14. Furthermore, we expect its 8% revenue-sharing from Synertone's US$5.8m in income (~Bt12m net-of-tax) to go straight to its 3Q14 bottom-line. Thaicom 8 is tentatively slated for launch in 1H16.




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