Weaker 3Q12 core profit than expected
THCOM reported a Bt107m net loss for 3Q12 (against net profits of Bt16m for 3Q11 and Bt115m for 2Q12). Bt254m in extra expenses were booked in 3Q12—a Bt252m Mfone loss provision and a Bt2m provision for Watta Classified (a unit of subsidiary CSL). Stripping out the extra provisions and FX, core profit would be Bt90m, up 132% YoY but down 44% QoQ. Reported core earnings were 31% below our estimate because of higher SG&A and tax expenses than modeled. Sales were in line with our expectation. Result highlights
The YoY jump in core profit was led by OPEX control. Service costs fell by 8% YoY and 2% QoQ. The top-line dipped by 3% YoY and 1% QoQ. The sales decline was due to the high revenue base in 3Q11—sales of an IPSTAR gateway to a Japanese client, gateway equipment to an Australian customer and the booking of Bt100m in gateway access fees paid by NBN. The QoQ core profit drop was due to higher SG&A with the Bt27m special payout of employee benefits and Bt42m in expenses related to the divestment of Mfone.
Thaicom 5 posted a strong 32% YoY and 14% QoQ rise in gross profit with the addition of seven new channels and higher value-added service revenue. IPSTAR’s gross profit fell by 12% YoY and 15% QoQ on lower IPSTAR sales and service revenue. The gross loss of the telephone unit deepened by 63% YoY and 11% QoQ, due to a weaker Mfone operation. Outlook
Despite the 3Q12 loss provision for Mfone, management aims to pay a dividend from stand-alone company EPS for FY12. The firm announced that Shenington Pte Ltd—in which THCOM holds 51%—will sell its 100% stake in Mfone to International Management Services Corp for US$98.44m. The deal should be completed before YE12. The proceeds of the sale will be used pay down Mfone's debts and related payables. THCOM CEO, Ms Supajee Suthumpun, said there won’t be any more loss provisions related to the Mfone sale in 4Q12. She also said she expects to close a deal with a big Indian telco by YE12; revenue should commence in 2H13. What’s changed?
We have cut our FY12 net profit forecast by 65% to factor in the one-time Mfone loss provision. But we have also revised up our FY13 projection by 37% (to Bt1.17bn) to factor out assumed Mfone losses from THCOM's consolidated income—the loss-making subsidiary will soon be divested. Our target price rises Bt5.5 to Bt33.5. Recommendation
Our BUY rating stands, premised on the big earnings jump in FY13.