Thailand Daily

Thursday, February 28, 2013

Thaicom (THCOM TB)

Achieving The Impossible
We upgrade Thaicom from SELL to BUY and raise our target price by 71% from Bt21.6/share to Bt37/share, which is currently the highest on the street. This is due to the signing of the CTS/Synertone deal, which doubles capacity utilszation on the key IPSTAR satellite, an achievement we once viewed as almost impossible. Thaicoms normalised earnings are expected to grow sevenfold in 2013. Whats New One incredible deal. The CTS/Synertone deal allows Chinese resellers to book 24% of IPSTARs capacity on a take-or-pay basis. The minimum payment will roughly be equal to depreciation for the remainder of its life, and the bonus payment is structured so that total payment still gives the reseller some discount. End users may include China Telecom and the Chinese military. This deal changes the fundamentals of the company, because the fixed costs have already been covered by the first 25% capacity utilisation. The high profit potential of IPSTAR was never in doubt. The major question was how they could fill such large capacity. We assume a reseller discount (which is not disclosed) of 30% for Synertone. If the discount is less than this, there will be further upside for Thaicom. Not a one-trick pony. Apart from this, there were other positives experienced by the company. Thaicom 6, which should be launched later this year, has achieved a 38% pre-booking even before it has been launched. Thaicom 7 will pay concession fees of just 5.75% of revenues compared with 20% to 22% for past satellites, and its launch is imminent. This provides a story similar to 3G mobile licences for Thaicom, but on only a small portion of its revenues. Japanese clients such as KDDI have also become clients of IPSTAR, which should raise utilisation to close to 60% by the end of the year.

BUY
(Upgraded)

Company Update
Share Price Target Price Upside (Previous TP
Company Description Sole satellite operator with mobile businesses in Cambodia and Laos phone

Bt27.50 Bt37.00 +34.5% Bt21.60)

Stock Data GICS sector Telecommunication Services Bloomberg ticker: THCOM TB 1,095.9 Shares issued (m): Market cap (Btm): 30,138.3 Market cap (US$m): 1,010.0 3-mth avg daily t'over 12.9 (US$m): Price Performance (%) 52-week high/low 1mth 3mth 6mth 12.2 17.0 48.6 Major Shareholders Shin Corporation NVDR Mr. Wanchai Punvichieng FY13 NAV/Share (Bt) FY13 Net Debt/Share (Bt) Price Chart
(lcy) 30
THAICOM PCL Thaicom Pcl/SET Index

Bt28.50/Bt11.70 1yr YTD 103.7 19.0 % 41.1 4.4 2.6 13.29 6.22

Stock Impact When fully reflected, these additional information will lead to large upside for Thaicom.
Key Financials
Year to 31 Dec (Btm) 2011 2012 6,519 3,842 1,334 174 838 0.8 36.0 2.1 9.6 0.0 2.7 34.5 9.2 1.2 2013F 7,888 4,283 1,624 1,249 1,249 1.1 24.1 2.1 8.6 2.9 15.8 46.8 17.9 8.7 1,186 1.05 2014F 9,506 5,377 2,603 2,185 2,185 2.0 13.8 2.0 6.9 5.1 23.0 33.7 69.0 14.7 1,614 1.35 2015F 10,615 6,113 3,249 2,782 2,782 2.5 10.8 1.9 6.1 7.4 26.2 17.3 n.a. 18.0 1,919 1.45

(%) 220

25

200 180

6,633 Net turnover EBITDA 2,820 253 Operating profit Net profit (rep./act.) (514) Net profit (adj.) (476) (0.4) EPS (Bt) PE (x) n.m. P/B (x) 2.1 13.1 EV/EBITDA (x) Dividend yield (%) 0.0 (7.8) Net margin (%) Net debt/(cash) to equity (%) 52.4 Interest cover (x) 5.9 (3.6) ROE (%) Consensus net profit UOBKH/Consensus (x) Source: Thaicom, Bloomberg, UOB Kay Hian

20

160 140

15

120 100

10
100

80

Volume (m)
50 0

Feb 12

Apr 12

Jun 12

Aug 12

Oct 12

Dec 12

Feb 13

Source: Bloomberg

Analyst Athaporn Arayasantiparb, CFA +662 659 8305 athaporn@uobkayhian.co.th

Refer to last page for important disclosures.

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Thailand Daily
Thursday, February 28, 2013
Earnings Revision/Risk We have made major revisions to our earnings forecast as shown below. The IPSTAR business model breaks even at 25% capacity utilisation, so any utilisation above this level flows directly to the bottomline. In addition to this, we have also factored in much stronger utilisation figures for Thaicom 6 (which should be half booked by end of this year), and incorporated Thaicom 7 (which operates under cheaper concession fees) into our model. Key risk is if utilisation levels fail to increase from this point. Earnings Revisions
--------2013F------------% Revised Prev. chg 7,888 7,660 3 4,283 3,563 20 1,249 406 208 1.13 0.47 208 54% 47% 8 5% 11 -----------2014F------------% Revised Prev. chg 10,698 8,389 28 5,377 3,968 36 2,185 521 319 1.99 0.96 319 50% 47% 3 20% 6% 14 ----------2015F-------------% Revised Prev. chg 11,956 8,885 35 6,113 4,243 44 2,782 1,049 165 2.53 1.22 165 51% 48% 3 23% 12% 11

EV/EBITDA Band Chart For Thaicom

(EV/EBITDA) 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Jan-06 +2SD:9.6x +1SD:7.5x Mean:5.4x -1SD:3.33x -2SD:1.2x

Aug-08

Mar-11

Jan-13

Source: Bloomberg

Revenues EBITDA Net profit EPS EBITDA Margin Net mgn 16% Source: UOB Kay Hian

Significantly Higher Utilisation For IPSTAR

80% 70% 60% 50% 40% 30% 20% 10% 0% 2013 2014 2015 2016 2017 2018 2019

Valuation/Recommendation We upgrade Thaicom from SELL to BUY on the back of the CTS/Synertone deal but also incorporate other positives such as the strong pre-bookings (38%) of Thaicom 6 and imminent launch of Thaicom 7 in 2014. Given the size and operating leverage of IPSTAR, the company will be fundamentally changed by this deal. We raise our price target by 71% from Bt21.6/share to Bt37/share based on target EV/EBITDA of 11x, previously 8x. The target multiple would be in line with other BUY rated stocks under our coverage. Note that Thaicom is now one of the fastest-growing companies under our sector coverage with 49% earnings growth on a reported basis (7-fold on normalised terms) for 2013, 75% growth for 2014, and 30% CAGR over a 5-year basis. Note that on a normalised basis, the company trades at a PEG ratio of 0.6x.

Revised

Previous

Source: UOB Kay HIan

And Thaicom 6
120% 100% 80% 60% 40% 20% 0% 2013 2014 Revised 2015 2016 2017 2018 2019 Previous

Source: UOB Kay Hian

Share Price Catalyst Further updates on pre-bookings of Thaicom 6 prior to its launch in late13. Further updates on pre-bookings of Thaicom 7 prior to its launch in early-14.
Target Price (Bt) 224.0 Share Price (Bt) 202.0 83.7 6.4 19.0 20.9 27.5 6.4 Market Cap (US$m) 20,126 6,646 1,543 630 210 1,010 3,111 32,266 450,748 ------- PE ------2013F 2014F (x) (x) 15.2 12.0 17.9 16.0 6.1 21.5 24.1 N/A 14.2 70% 13.7 75% 10.0 12.1 4.5 19.6 13.8 N/A 10.3 34% 12.1 14% -- EV/EBITDA -2013F 2014F (x) (x) 8.6 7.1 7.6 8.0 5.6 9.9 8.6 7.3 8.2 6% 6.1 42% 5.4 6.6 4.3 8.1 6.9 7.5 6.7 3% 5.7 20% --- Div Yield --2013F 2014F (%) (%) 4.7 5.9 3.4 5.2 3.7 2.2 2.9 0.0 4.0 (1.1) 4.2 (1.3) 3.4 6.2 4.7 2.4 5.1 0.0 4.8 0.3 4.7 0.4

Peer Comparison
Company Ticker Rec Upside (%) 11 43 (29) (45) 20 35 (53)

Advanced Info ADVANC TB BUY Service Total Access DTAC TB BUY 120.0 Communication Jasmine JAS TB SELL 4.6 International Samart Corp SAMART TB SELL 10.5 Symphony SYMC TB BUY 25.0 Communications Thaicom THCOM TB BUY 37.0 True Corporation TRUE TB SELL 3.0 Thai telecoms excl. Thaicom UNDER WEIGHT (Discount)/Premium to Thai telecoms Regional telecoms MARKET WEIGHT (Discount)/Premium to regional telecoms Source: UOB Kay Hian

Refer to last page for important disclosures.

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Thailand Daily
Thursday, February 28, 2013
Profit & Loss
Year to 31 Dec (Btm) Net turnover EBITDA Deprec. & amort. EBIT Total other non-operating income Associate contributions Net interest income/(expense) Pre-tax profit Tax Minorities Preferred dividends Net profit Net profit (adj.) 2012 6,519 3,842 2,508 1,334 106 164 (420) 520 (347) 0 0 174 838 2013F 7,888 4,283 2,659 1,624 115 46 (239) 1,546 (300) 4 0 1,249 1,249 2014F 9,506 5,377 2,773 2,603 139 50 (78) 2,715 (533) 3 0 2,185 2,185 2015F 10,615 6,113 2,864 3,249 155 55 0 3,460 (681) 3 0 2,782 2,782

Balance Sheet
Year to 31 Dec (Btm) Fixed assets Other LT assets Cash/ST investment Other current assets Total assets ST debt Other current liabilities LT debt Other LT liabilities Shareholders' equity Minority interest Total liabilities & equity 2012 17,128 2,873 2,400 3,409 25,811 133 3,604 7,161 674 14,203 36 25,811 2013F 19,225 2,969 278 1,927 24,399 3,633 1,994 3,461 704 14,568 39 24,399 2014F 18,001 3,069 511 2,330 23,910 5,633 2,293 0 734 15,207 43 23,910 2015F 15,937 3,176 902 2,606 22,621 3,633 2,423 0 765 15,753 46 22,620

Cash Flow
Year to 31 Dec (Btm) Operating Pre-tax profit Tax Deprec. & amort. Associates Working capital changes Non-cash items Other operating cashflows Investing Capex (growth) Capex (maintenance) Investments Proceeds from sale of assets Others Financing Dividend payments Issue of shares Proceeds from borrowings Loan repayment Others/interest paid Net cash inflow (outflow) Beginning cash & cash equivalent Changes due to forex impact Ending cash & cash equivalent 2012 3,855 1,020 164 2,508 (164) (147) 473 0 (491) (1,428) (500) 0 0 1,437 (3,909) 0 0 54 (3,116) (847) (545) 2,945 0 2,400 2013F 3,989 1,500 46 2,659 (46) (129) (42) 0 (4,776) (4,156) (500) 0 0 (120) (1,335) (877) 0 3,500 (3,700) (258) (2,122) 2,400 0 278 2014F 5,288 2,665 50 2,773 (50) (103) (47) 0 (1,569) (949) (500) 0 0 (120) (3,487) (1,539) 0 2,000 (3,461) (486) 232 278 0 511 2015F 6,070 3,404 55 2,864 (55) (147) (52) 0 (820) (200) (500) 0 0 (120) (4,858) (2,229) 0 (2,000) 0 (629) 391 511 0 902

Key Metrics
Year to 31 Dec (%) Profitability EBITDA margin Pre-tax margin Net margin ROA ROE Growth Turnover EBITDA Pre-tax profit Net profit Net profit (adj.) EPS Leverage Debt to total capital Debt to equity Net debt/(cash) to equity Interest cover (x) 33.9 51.4 34.5 9.2 32.7 48.7 46.8 17.9 27.0 37.0 33.7 69.0 18.7 23.1 17.3 n.a. (1.7) 36.2 n.a. n.a. n.a. n.a. 21.0 11.5 197.0 618.1 49.1 49.1 20.5 25.5 75.6 74.9 74.9 74.9 11.7 13.7 27.4 27.3 27.3 27.3 58.9 8.0 2.7 0.7 1.2 54.3 19.6 15.8 5.0 8.7 56.6 28.6 23.0 9.0 14.7 57.6 32.6 26.2 12.0 18.0 2012 2013F 2014F 2015F

Refer to last page for important disclosures.

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Thailand Daily
Thursday, February 28, 2013

We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of the addressee only and is not to be taken as substitution for the exercise of judgement by the addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. UOB Kay Hian and its affiliates, their Directors, officers and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add to or dispose of any such securities. UOB Kay Hian and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies.

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