Thaicom: Worst not over yet February 12, 2018

Plan to increase role of non-satellite business

THCOM has laid out a plan to increase the role of the non-satellite business including the likes of Maritime, LOOX TV and digital platform services on par with the satellite business as part of a strategy rejig. The move comes after nascent signs of saturation in the highly competitive satellite market and regulatory uncertainties which could impede growth. To this end, THCOM has no plan to invest in new satellites in the near future but it may buy wholesale capacity from other providers or use technology to extend the satellite’s service life instead. However, we have not yet incorporated the plan to extend the satellite’s operating life into our forecast as it is still under study. We also give little weight to the non-satellite business notably the new digital platform services i.e. AI, blockchain and loT. Even as these non-satellite services have strong growth potential, demand growth is however unlikely to be strong enough to replace the satellite business. Non-satellite business currently contributes only 4%-5% of THCOM’s total revenue.

Impairment charge a one-time pain in exchange for lower future burden

In FY17, THCOM took a Bt3,196mn charge for the impairment of intangible assets of Thaicom 4 and Thaicom 6. Although the above impairment charge was the main culprit behind its hefty loss of Bt2,650mn in FY17, it would come with the benefit of depreciation expense savings of around Bt868mn per annum until satellite concession terms end in FY21. Currently THCOM operates three satellites under a concession regime: Thaicom 4 (iPSTAR), Thaicom 5 and Thaicom 6 and two satellites under the NBTC license: Thaicom 7 and Thaicom 8.

FY18 core profit outlook of Bt149mn

Stripping out a gain of around Bt1885mn from the divestment of CSL in FY18, as well as the Bt3,196mn impairment charge, the Bt113mn non-cash goodwill impairment charge, the Bt352mn provision for a doubtful debt of a broadband customer and the Bt137mn share of profit from CSL in FY17, we estimate THCOM will see its core profit drop 83% y-y to Bt149mn in FY18 from Bt874mn in FY17 as a result of faltering revenue. Even though depreciation and amortization costs look set to grind lower after THCOM took the above impairment charge in FY17, sales and service revenue is expected to drop 27.4% y-y as additional revenues from customers in Thailand, Indonesia, India and Australia in broadband satellite business may not be enough to offset the loss of major customers in the previous year including (i) NBN of Australia due to contract termination, (ii) TOT as a result of contract expiry, and (iii) Synertone of China owing to contract termination but the provision has already been taken. The overall broadband satellite utilization more than halved to 26% at end-FY17 from 55% in FY16 following the loss of the above major customers. For broadcast satellite business, yield is still low in the face of fierce price competition against the backdrop of a continued contraction in the country’s broadcasting industry even as the number of satellite TV channels has been on a steady rise especially in neighbouring countries. The overall broadcasting satellite utilization stood at 57% at end-FY17 against 59% in
FY16.

‘SELL’ rating unchanged with FY18 target price of Bt10.50/share

In our view, the current share price has been supported by a divestment gain of CSL. Even though THCOM declared a special dividend of Bt1.36/share for Jan 1-31 and the stock will trade ex-dividend (XD) on Apr 4, 2018, the softer trend in its normalized profit led us to stick to our ‘SELL’ rating on THCOM shares with a DCF-based target price of Bt10.50/share. We have omitted its new satellite launch plan and potential benefits from the new digital platform services from our valuation.

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