THCOM was established in 1991 and has been the sole satellite operator in Thailand. After listed in the Stock Exchange of Thailand (SET) in 1994, Shin Corporation PLC (INTUCH) remained THCOM’s major shareholder with a 41.14% stake as of April 2013. THCOM operates two geosynchronous satellites: a conventional satellite (Thaicom5) and a broadband satellite (Thaicom4, also known as IPSTAR). THCOM also has investments in telecommunication business in Lao PDR, and Internet and media related businesses. THCOM’s revenue reached Bt7,266 million in 2012, rising by 9.7% from 2011, and stood at Bt1,774 million for the first three months of 2013. The conventional satellite contribution has grown over 40% of total revenue since 2012. Sales and service revenue from the IPSTAR contributed around 46% during the same period. Customers of THCOM’s conventional satellite services are primarily located in Thailand and neighboring countries. IPSTAR customers are mainly based in Thailand, Australia, Japan, Malaysia, India, and China.
THCOM’s credit strength is secured by high barriers to entry of satellite industry, involving a limited number of orbital slots, high capital investment, complicated regulatory processes, and technological requirements. At present, THCOM has occupied all operating orbital slots available for Thailand. In addition, the revenue of satellite business is secured under the medium- to long-term rental contracts. The potential growth is hinged on the prospect of broadcasting business, broadband internet, and the mobile backhaul requirement.
The number of broadcast TV channels on Thaicom5 has grown steadily, rising from 427 channels in 2011 to 465 channels at the end of March 2013. In Thailand, the competition in broadcasting industry is expected to intensify with many new players urged by digital TV license, soon to be launched, and liberalization on commercial revenue. High-definition (HD) channel is also another factor that will drive transponder utilization. As of March 2013, THCOM had US$335 million of backlog from conventional satellites. Currently, THCOM has planned to launch two new conventional satellites, Thaicom6 and Thaicom7. Thaicom6 is scheduled to launch in late 2013. The launch of Thaicom6 has been slightly delayed from original schedule. Meanwhile, THCOM has leased the capacity from other satellite to provide services as an interim solution. As of March of 2013, THCOM has pre-sold nearly 60% of the capacity of Thaicom6, mainly serving demand in Thailand for satellite TV and the increasing popularity of HD channels. Thaicom7 is now under construction by Asia Satellite Telecommunications Co., Ltd. (AsiaSat) and is scheduled to launch in 2014. THCOM contracts to acquire up to 50% of Thaicom7’s capacity. Thaicom6 and Thaicom7 will add 40 transponders to THCOM’s portfolio. The new satellites will be key drivers for THCOM’s growth in the medium term.
THCOM is considered as one of key broadband satellite service providers in the Asia Pacific region. The company has focused on selling the IPSTAR bandwidth to telecom companies, communication-related business enterprises, and government projects. THCOM also provides customers with end-to-end solution services. The IPSTAR bandwidth utilization rate rose from 24.6% in 2011, to 25.2% at the end of 2012, and 28.4% at the end of March 2013. IPSTAR’s utilization in 2013 is expected to climb as THCOM secured contracts of all bandwidth allocated to China and Thailand. The bandwidth sold in Thailand is doubled in 2013 which is accounted 7.9% of total IPSTAR’s capacity. For China, THCOM has allocated a significant portion (24.4%) of IPSTAR’s capacity. The penetration of IPSTAR in the Chinese market has been delayed. In March 2013, the company reached a definitive agreement with Vastsuccess Holding Limited (VAST), a wholly-owned subsidiary of Synertone Communication Corporation (SYNERTONE). SYNERTONEis a Hong Kong-based provider of core components of specialized communication system and related technology solution. The agreement stipulated that THCOM will sell all of IPSTAR’s bandwidth allocated to China to VAST for the remaining service period of Thaicom4. This agreement pushes IPSTAR’s bandwidth utilization rate up to 53% of total capacity, in exchange of the minimum fee payable annually and the revenue sharing derived from VAST’s service provision. The execution of the agreement is subject to fulfill the condition precedent by the latest 30 September 2013. The earning from the China business is less than the expectation. However, it has upside gain from the revenue sharing scheme.
The financial profile of THCOM has improved, underpinned by strong profit margins, growing cash flows, and improving capital structure. Operating income before depreciation and amortization as a percentage of sales were in a range of 50% during 2011 to the first quarter of 2013, supported by the expansion in IPSTAR services and the closure of a loss-making segment. Mfone Co., Ltd. (Mfone), THCOM’s telephony business in Cambodia, filed for insolvency proceedings in the beginning of 2013. THCOM set aside a full loss provision of Mfone transaction in 2012, and there will be no further impact to its book. Going forward, earnings and fund from operations (FFO) are expected to grow on the back of prospective demand for conventional satellite services and growth in the broadband satellite segment.
THCOM’s leverage declined as the company repaid Bt3,300 million in bonds due in 2012. As a result, the total debt to capitalization ratio dropped from 42% in 2011 to 33.6% at the end of March 2013. In the medium term, TRIS Rating views that THCOM’s leverage level will likely to rise to support its future growth plans. The foreseen financing requirement is to support construction of Thaicom6. In addition, THCOM signed a cooperation agreement with AsiaSat to build the Thaicom7 satellite which THCOM is obliged to pay 15-year rental. The net present value of that long-term commitment will be treated as a liability. Going forward, the company will continue to pursue its dividend payout policy. THCOM's liquidity position satisfactorily improved in 2012 and in the first quarter of 2013. Onward, THCOM's credit quality will be weighed on the cash flow generating ability which is expected to significantly enhance along the launch of two new satellites. TRIS Rating expects that THCOM will continue its conservative financial policy for its future investment.
Thaicom PLC (THCOM)
Company Rating: BBB+
Issue Rating:
THCOM14NA: Bt3,700 million senior debentures due 2014 BBB+
Rating Outlook: Positive