Analysts Note Thaicom’s Lack of Momentum on New Ipstar Deals

[Satellite News 05-17-12] Thaicom has seen its third consecutive quarter of net profits, with earnings of 42 million Baht ($1.34 million) and revenues of 1.95 billion Baht ($62 million) in its first fiscal period of 2012. Thaicom also confirmed that its core satellite operations now contribute nearly 80 percent of its total revenues.

   While the operator said it was pleased with its first quarter performance, its latest set of financial results, issued May 17, only gained a lukewarm response from analysts who follow the stock, as its actual numbers were significantly below analyst expectations.
   Rattana Leenutaphong, a satellite equity analyst at IV Global Securities said Thaicom missed her firm’s first-quarter profit estimate of 92 million Baht ($2.92 million) due largely to a one-time impairment loss of 41 million Baht ($1.30 million) for its Mfone mobile phone business in Cambodia.
   “We see earnings in the second quarter improving significantly quarter-on-quarter and year-on-year with the absence of one-time items,” Leenutaphong said in a research report.
Thaicom’s first quarter normalized profit of 30 million Baht ($953,830) was 65 percent below both Capital Nomura Securities’ forecast and the consensus estimate, according to Capital Nomura Satellite Equity Analyst Piyachat Ratanasuvan.
   “Thaicom fell below our projections due to lower-than-expected service revenues from Ipstar and lower-than-anticipated gross profit margin for the company’s mobile phone business,” said Ratanasuvan. “However, this normalized profit result still represents a turnaround from the company’s normalized loss of 153 million Baht ($4.87 million) in the first quarter of the 2011 full year and can be attributed to the increase in its revenues on a year-on-year basis.”
   While Thaicom’s performance with Ipstar improved during its latest quarter, Ratanasuvan said the results also produced a source of concern. “Thaicom’s first quarter performance reflects the fact that Ipstar’s service revenues improved on a quarter-on-quarter basis. However, the growth rate for Thaicom’s service revenues was weaker than expected,” said Ratanasuvan. “The company has explained that this was due to the negative impact of the appreciation of the Baht against the U.S. dollar. Moreover, in the first quarter, the company signed up only one new Ipstar customer from Japan, while its existing Ipstar customers’ bandwidth usage did not increase.”
   The first-quarter contribution from Ipstar’s service revenues amounted to 786 million Baht ($24.99 million), representing a one percent quarter-on-quarter increase and 61 percent increase compared to the same period last year.
   Ratanasuvan said analysts also are concerned that the outlook for Ipstar’s service revenues could continue to put near-term, downward pressure on Thaicom’s stock share price.
“The list of potential positive catalysts for Thaicom’s share price include the announcement of new Ipstar contracts and progress with the divestment of its mobile phone unit in Cambodia,” Ratanasuvan said.
   Leenutaphong noted Thaicom’s struggles to gain new Ipstar contracts, as the operator has been unable to secure any significant deals for Ipstar since early this year. “The company is working closely with clients in many markets to try to expand bandwidth sales for more utilization, such as with China Telecom for commercial operations of the mobile backhaul service in Xinjiang province, BSNL for additional backhaul and corporate demand growth and with telcos in Indonesia and the Philippines for potential bulk bandwidth sales,” said Leenutaphong. “Thaicom Management aims to boost Ipstar’s capacity utilization from its current 25 percent rate to between 32 percent and 35 percent by the end of 2012, surpassing the break-even level of 28 percent.”
   The analysts’ response poses a challenge to Thaicom’s new executive chairwoman, Suphajee Suthumpun, as the company begins to launch new satellites in the near future and boost its position in Asia. The operator’s Thaicom-6 satellite is scheduled to launch with SpaceX in 2013, while its Thaicom-7 satellite remains in the design phase.
   Thaicom management hopes to secure at least 30 percent of Thaicom-6’s capacity before the launch date. The operator has pre-sold about 15 percent of the satellite’s capacity. The new satellite is equipped with 18 C-band transponders and 8 Ku-band transponders.
   Leenutaphong predicted that Thaicom would break even on Thaicom-6 by 2016. “About 80 percent of the funding for the $160 million investment in Thaicom-6 will come from Kasikorn Bank borrowings and the remaining 20 percent will come from Thaicom’s internal cash flow.”

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