Investment thesis: We reiterate our BUY rating on THCOM, premised on: 1) stronger 1Q12 core and net numbers, 2) an FY12 bottom-line turnaround to black ink and 3) scope for earnings forecast upgrades from the divestment of Mfone in 2Q12 and IPSTAR bulk sales to China in 2H12. FY13-15 profit growth will be underpinned by the launches of Thaicoms 6, 7, 8 and 9. THCOM’s current YE12 PBV of 1x is too cheap for a turnaround play, we believe.
Stronger 1Q12 core operations: We estimate a Bt70m net profit for 1Q12, against a Bt167m net loss for 1Q11 and a Bt315m net loss for 4Q11. Excluding extra items—an FX loss and a Bt360m deferred tax provision in 4Q11—1Q12 core earnings would be Bt95m, up 12% QoQ and a turnaround from the 1Q11 core loss of Bt153m. Two one-off items were booked to other income in 4Q11—a Bt29m gain from selling a gateway to MEASAT of Malaysia and an Bt18m insurance payout (related to 4Q11 flooding). Stripping out the two extra items, adjusted core earnings would be even stronger QoQ—up 150% QoQ.
Key 1Q12 drivers are IPSTAR and … We estimate Bt1.95bn in revenue for 1Q12, up by 24% YoY and 5% QoQ. The key 1Q12 income drivers were conventional satellite—up 19% YoY—and the IPSTAR—up 55% YoY. IPSTAR revenue was boosted by receipts from the Australian National Broadband Network (NBN) and MEASAT of Malaysia, effective 4Q11, bandwidth sales to new Japanese telco clients (KDDI in December 2011 and NTT Docomo in March 2012), a 50% sales price increase for SoftBank (a client, since April 2011) and heavier bandwidth usage in India.
… Thaicom 5 and LTC: Compression technology has boosted Thaicom 5’s capacity, enabling it to take on more clients (mostly satellite TV broadcasters). Moreover, revenue from the telephone units will post a further 7% QoQ rise, underpinned by growth at Lao Telecom. We assume that Mfone will report flat QoQ income.
Mfone divestment expected in 2Q12: We believe that THCOM is in the final stages of closing the Mfone sale. The other possible option of taking on a strategic partner would seem unlikely, given the ongoing price war among Cambodian cellular operators.