Opinion of the Independent Financial Advisor

Transcription

Enclosure 3
(Translation)
Opinion of the Independent Financial Advisor
Regarding Acquisition of Assets
Investment in Construction of INET Data Center 3 (INET-IDC3)
of
Internet Thailand Public Company Limited
Prepared by
Advisory Plus Company Limited
November 26, 2015
This English report of the Independent Financial Advisor’s Opinions has been prepared solely for the
convenience of foreign shareholders of Internet Thailand Public Company Limited and should not be relied
upon as the definitive and official document. The Thai language version of the Independent Financial Advisor’s
Opinion is the definitive and official document and shall prevail in all aspects in the event of any inconsistency
with this English Translation.
Table of Contents
Executive Summary ................................................................................................................................ 3
1. Nature and details of the transaction ........................................................................................ 5
1.1 Type and size of the transaction ............................................................................................. 5
1.2 Value of assets being acquired, value of consideration
and criteria for determining value of consideration ................................................................ 5
1.3 Details of assets being acquired.............................................................................................. 6
1.4 Summary of agreements relating to the asset acquisition transaction .................................... 9
2. Company Profile........................................................................................................................ 10
2.1 Background ........................................................................................................................... 10
2.2 Business overview ................................................................................................................ 10
2.3 Industry situation relating to the Company’s business ......................................................... 19
3. Reasonableness and benefits of the transaction ..................................................................... 25
3.1 Reasonableness and benefits of the transaction .................................................................... 25
3.2 Benefits and impacts of the transaction ................................................................................ 26
3.3 Adequacy of funding sources for asset acquisition .............................................................. 30
4. Fairness of price and conditions for the transaction .............................................................. 32
4.1 Fairness of transaction price ................................................................................................. 32
4.2 Appropriateness of conditions for the transaction ................................................................ 39
5. Conclusion of the Independent Financial Advisor’s opinion ................................................ 40
Opinion of the Independent Financial Advisor Regarding Acquisition of Assets
Definitions
The Company or INET
Internet Thailand Plc.
Project Designer
Hewlett-Packard (Thailand) Ltd.
IDC or Data Center
Internet Data Center
INET-IDC1
INET Data Center 1 at Bangkok Thai Tower
INET-IDC2
INET Data Center 2 at Thai Summit Tower
INET-IDC3 or the Project
INET Data Center 3
Cloud Computing or Cloud
A kind of computing by Internet users with an Internet-based
sharing of resources, software and information between service
providers
Cloud Service or
Cloud Solutions
A sharing of computer resources via Internet networks
Cloud Service Provider
Provider of Cloud Solutions
Co-Location
A type of service allowing users to rent space in a provider’s data
center for residing their servers or other computer devices for
Internet connection, subject to rental contract signing and service
fee chargeable on a monthly or yearly basis
Digital Economy
An IT-based economy that accentuates use of information
technology for economic activities and several sectors in an
economic system
Hybrid Cloud
A combination of private and public clouds
Private Cloud
A cloud created to privately serve any single organization or
authorized group, for example, a company’s cloud for use by its
employees only and allowing its business partners to access the
related system
Public Cloud
A cloud designed for sharing among the general public such as
Google’s cloud
Virtual Machine or VM
An operating system that enables the use of software for emulating
a server as if there were multiple computers co-existing in a single
server
Data Center Tier 3+ Standard
A standard for measuring a data center’s maximum availability or
minimum downtime, which is in line with the standard of data
center at Tier 3 level or higher under the site infrastructure
classification standards; that is, when there is any operation error
arising, the data center is capable of repairing or replacing the
equipment without disrupting the normal operation, except for
some types of network equipment that need to be maintained on a
planned basis
Notification of Acquisition or
Disposition of Assets
Notification of the Capital Market Supervisory Board No. TorChor
20/2551 Re: Rules on Entering into Material Transactions Deemed
as Acquisition or Disposal of Assets and Notification of the Board
of Governors of the Stock Exchange of Thailand Re: Disclosure of
Information and Other Acts of Listed Companies Concerning the
Acquisition or Disposition of Assets B.E. 2547, dated October 29,
2004, and as amended
SEC
Office of the Securities and Exchange Commission
SET
Stock Exchange of Thailand
IFA
Advisory Plus Co., Ltd.
AP. 046/2558
November 26, 2015
Subject Opinion of the Independent Financial Advisor on asset acquisition from investment in
construction of INET Data Center 3 of Internet Thailand Plc.
To
The Board of Directors and the Shareh
Shareholders
s’ Meeting of Internet Thailand Plc. (“the Company” or “INET”) No.
The Board of Directors’
12/2558 held on October 15, 2015 passed a resolution to approve INET to invest in the construction
of INET Data Center 3 (INET-IDC3)
IDC3) within the investment framework of not more than Baht 750
million in order to support the Company’s business expansion in the future.
The transaction is considered an acquisition of assets of listed company in accordance with
the Notification
tion of the Capital Market Supervisory Board No. TorChor 20/2551 Re: Rules on Entering
into Material Transactions Deem
Deemed as Acquisition or Disposal of Assets and the Notification of the
Board of Governors of the Stock Exchange of Thailand (“SET”) Re: Disclosure
osure of Information and
Other Acts of Listed Companies Concerning the Acquisition or Disposition of Assets B.E. 2547 and
as amended (“Notification of Acquisition or Disposition of Assets”). The highest transaction size is
equal to 72.05%,1 calculated on tthe
he total value of consideration basis according to the consolidated
financial statements of the Company and its subsidiaries for the six-month
month period ended June 30,
2015.. Therefore, the transaction is regarded as a Type
Type-1
1 asset acquisition transaction under the
Notification of Acquisition or Disposition of Assets with transaction size equal to 50% or higher but
less than 100%. As such, the Company is obligated to disclose information on the transaction to the
SET and seek approval for entry into such transa
transaction from a shareholders’ meeting of the Company
with required affirmative votes of not less than three-fourths
fourths of the total votes of the shareholders
attending the meeting and having the right to vote, excluding votes of the shareholders who have a
conflict of interest.
However, the said transaction is not deemed as a connected transaction under the
Notification of the Capital Market Supervisory Board No. TorChor. 21/2551 and the Notification of
the SET Board of Governors Re: Disclosure of Information an
and
d Other Acts of Listed Companies
Concerning Connected Transactions B.E. 2546.
The Company will convene the Extraordinary General Meeting of Shareholders No. 1/2558 on Friday,
December 18, 2015 to consider and approve the entry into such transaction. In seeking
se
such
shareholders’ approval, the Company must arrange for an independent financial advisor to render
opinion to the Company’s shareholders regarding (1) reasonableness and benefits of the transaction to
the listed company, (2) fairness of price and cconditions for the transaction, and (3
3) recommendation as
1
From calculation according to the consolidated financial statements the Company and its subsidiaries for the
nine-month
month period ended September 30, 2015, the invest
investment in INET-IDC3
IDC3 project will have a total asset
acquisition transaction size of 68.17% on the total value of consideration basis.
to whether the shareholders should vote for or against the transaction together with reasons thereof. In
this respect, the Company has appointed Advisory Plus Co., Ltd. as the independent financial advisor
(“IFA”) to provide opinion to the Company’s shareholders regarding this transaction.
In providing opinion herein, we have studied the information and documents obtained from
the Company and the publicly available information such as resolution of the Company’s Board of
Directors, the information memorandum relating to the transaction, the Company’s annual registration
statement (Form 56-1), the auditor’s report, financial statements, business plan relevant to the
investment in INET-IDC3, financial projection and related assumptions for INET-IDC3 project, draft
agreements and other documents relevant to the transaction, including the information derived from
interviews with the Company’s management, together with assessment of changing trend of
technology, industry situation, competition and other relevant economic factors, to be a basis for
analysis and rendering of opinion.
The opinion given herein is based on the assumption that all of the information and
documents obtained from the Company, the publicly available information and other relevant
information, and the information derived from the interviews with the Company’s management are
true, correct and complete without any change or amendment thereto after being made available to us.
We may not certify or guarantee the accuracy or completeness of the said information. Our rendering
of opinion is, moreover, based on the economic environment, the industry, competition and relevant
technology, and the information prevailing at the time of preparing this study only. As such, if there
is any significant change in these factors, it will likely have a material impact on the Company and
this transaction, as well as on the shareholders’ decision-making. Therefore, in providing opinion
herein, we may not affirm as to whether there will be any potential material impact on the Company
and its shareholders in the future. Our purpose is to provide opinion to the Company’s shareholders
regarding the above mentioned transaction only. The decision as to whether to approve the entry into
this transaction primarily rests with the shareholders’ individual judgment. Besides, the opinion
provided herein is by no means a guarantee for accomplishment of the transaction and the potential
impacts and, hence, the IFA shall not be held responsible for any impacts that may arise from the
entry into this transaction, whether directly or indirectly.
Our opinion can be summed up as follows:
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Executive Summary
The Board of Directors’ Meeting of the Company No. 12/2558 held on October 15, 2015
passed a resolution to approve the Company to invest in the construction of INET Data Center 3
(INET-IDC3) on leased land located on access road of Siam Cement (Kaeng Khoi) Co., Ltd. in Thap
Kwang Sub-district, Kaeng Khoi District, Saraburi Province, within the investment framework of not
more than Baht 750 million in order to support the Company’s business expansion in the future and
the growing demand for Cloud Solutions as well as utilize the data center as a backup center for the
Company’s Cloud Solutions and also as a backup center for the Company’s clients.
The investment in the construction of INET-IDC is considered an acquisition of assets. The
highest transaction size is equal to 72.05%,2 calculated on the total value of consideration basis
according to the consolidated financial statements of the Company and its subsidiaries for the sixmonth period ended June 30, 2015. Therefore, the transaction is regarded as a Type-1 asset
acquisition transaction, but is not deemed as a connected transaction.
The investment in construction of INET-IDC3 corresponds with the Company’s goal to
become a cloud market leader. The Company is among the pioneers of cloud computing service
provision in Thailand, with high standards of security and stability. It was the first Thai provider to
obtain Cloud Security Alliance - Security, Trust & Assurance Registry (CSA-STAR) certification,
which is an information security standard exclusively for cloud service. This could bear testimony to
the Company’s readiness and potential for advancing to a comprehensive cloud service provider.
The Company will benefit from entry into this transaction by being able to increase its market
share and retain its leadership in the cloud computing market. Moreover, it will be able to expand the
existing and new customer base and grow revenues in the future. By entering into this transaction, the
Company will be able to offer a more comprehensive range of services, in addition to its two existing
data centers in Bangkok. All of the three data centers will be linked together to enhance the data
stability and security. The Company will thereby be able to reach all target groups and, hence, to
generate a sustainable competitive advantage and organic growth so as to gear up for the anticipated
intense competition in the future. Besides, the shareholders will have an opportunity to receive a
favorable rate of return on investment. The investment in this project will enable the Company to earn
a higher profit in overall and pay a favorable rate of dividends to its shareholders. In addition, INETIDC3 project is entitled to apply for investment incentives under the investment promotion law from
the Board of Investment (BOI), thus resulting in a higher net profit and a higher rate of dividend
payment than in the case of non-BOI promotion.
Nonetheless, there are some potential impacts and downside risks to the Company which
include risk from higher debt burden and interest expenses since the project will be entirely funded by
loans; risk from failure to achieve the expected rate of return due to a delay in project construction
which could cause the Company to lose an opportunity to compete in the business or be faced with
cost overrun or fail to carry on the established business plan; and risk associated with rapid changes in
information technology.
Based on an analysis of cash flow projection of INET-IDC3 project, it is found that if the
Company is able to operate the project according to the established assumptions, it will enjoy the
estimated IRR of around 39.37% per year, which is higher than the cost of financing that is debt of
6.28% (under the financial projection the Company will not use equity financing for this project).
Moreover, the project has a present value of net free cash flow of Baht 2,945 million with a payback
period of 4.63 years, representing a favorable rate of return and a worthwhile investment.
2
From calculation according to the consolidated financial statements of the Company and its subsidiaries for
the nine-month period ended September 30, 2015, the investment in INET-IDC3 project will have a total asset
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In our opinion, the overall conditions for the transaction are appropriate and beneficial to the
Company and provide flexibility in business operation. The Company will not lose any benefit or
competitive advantage.
Based on the above mentioned rationale, we view that the shareholders will gain benefits
from this transaction and, therefore, recommend that the shareholders should vote in favor of the said
acquisition of assets. The transaction is deemed reasonable with a fair price and fair conditions.
In deciding whether to approve or disapprove the proposed transaction, the shareholders can
consider the above reasons and opinion provided herein by the IFA. The final decision depends
primarily on the shareholders’ individual judgment.
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1. Nature and details of the transaction
1.1 Type and size of the transaction
The Board of Directors’ Meeting of the Company No. 12/2558 held on October 15, 2015
passed a resolution to approve INET to invest in the construction of INET Data Center 3 (INETIDC3) on leased land located on access road of Siam Cement (Kaeng Khoi) Co., Ltd. in Thap Kwang
Sub-district, Kaeng Khoi District, Saraburi Province, within the investment framework of not more
than Baht 750 million in order to support the Company’s business expansion and the growing demand
for Cloud Solutions as well as utilize the data center as a backup center for the Company’s Cloud
Solutions and also as a backup center for the Company’s clients.
The transaction is considered an acquisition of assets under the Notification of Acquisition or
Disposition of Assets. The highest transaction size is equal to 72.05%,3 calculated on the total value of
consideration basis according to the consolidated financial statements of the Company and its
subsidiaries for the six-month period ended June 30, 2015. Therefore, the transaction is regarded as a
Type-1 asset acquisition transaction with transaction size equal to or higher than 50% but less than
100%. The Company did not enter into any other asset acquisition transactions in the past six months.
Details of the transaction size calculation are as tabulated below:
Calculation criteria
1. NTA basis
=
2. Net profit basis
=
Formula
Transaction size
% NTA of acquired entity
NTA of INET
Not applicable because the
acquired assets are not securities
% Net profit earned from acquired assets
Net profit of INET
Not applicable because the
acquired assets have not yet
delivered any business
performance
3. Total value of
consideration
basis
=
Value of consideration paid *100%
Total assets of INET
4. New shares
offering basis
=
No. of issued shares for acquisition of assets*100%
No. of issued and paid-up shares of INET
Baht 750 million
Baht 1,040.88 million
72.05%3
No issuance of shares for
acquisition of assets
Note: NTA means book value of net tangible assets.
Therefore, the Company is obligated to disclose information on the transaction to the SET and
seek approval for entry into such transaction from a shareholders’ meeting of the Company with
required affirmative votes of not less than three-fourths of the total votes of the shareholders attending
the meeting and having the right to vote, excluding votes of the shareholders who have a conflict of
interest. For this transaction, none of the shareholders have any interest therein.
1.2 Value of assets being acquired, value of consideration and criteria for determining value of
consideration
INET-IDC3 to be constructed by the Company will involve a total investment cost of
approximately Baht 750 million, which has been estimated based on the median price and the price
quotation proposed to the Company. It can be broken down into cost of building construction and
area improvement of about Baht 300 million (including land rental fee throughout the agreement
3
From calculation according to the consolidated financial statements of the Company and its subsidiaries for
the nine-month period ended September 30, 2015, the investment in INET-IDC3 project will have a total asset
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term of Baht 40.7 million), cost of infrastructure system such as core network and power system of
Tier 3+4 of around Baht 330 million, and cost of Cloud Solutions system of Baht 120 million.
The Company has engaged Hewlett-Packard (Thailand) Ltd. as the project designer and is in
the process of employing a contractor for project construction.
1.3 Details of assets being acquired
INET Data Center 3 (INET-IDC3) will be sited on land that will be leased from Siam Cement
(Kaeng Khoi) Co., Ltd., the landlord, for a 30-year term from January 1, 2016 to December 31, 2045.
The land covers a total area of approximately 19-2-20 Rai, located on access road of Siam Cement
(Kaeng Khoi) Co., Ltd. in Thap Kwang Sub-district, Kaeng Khoi District, Saraburi Province.
Map of INET-IDC3 project site in Kaeng Khoi District, Saraburi Province
4
A supporting power system under the standard of data center at Tier 3 level or higher; that is, when there is
any operation error arising, the data center is capable of repairing or replacing the equipment without
disrupting the normal operation, except for some types of network equipment that need to be maintained on a
planned basis.
The Uptime Institute, LLC, a US-based institute for certification of site infrastructure Tier standards for the
design, construction and operation of data centers across the globe, has defined the data center site
infrastructure into four classifications: Tier 1, Tier 2, Tier 3 and Tier 4 as follows:
1) Tier 1: Basic Capacity (a data center that has basic infrastructure components with power system or
cooling equipment to sufficiently support the operation of the data center only, without any backup
system in case of operation errors arising)
2) Tier 2: Redundant Components (a data center that has the major redundant capacity components such as
extra engine generators, cooling units, etc.)
3) Tier 3: Concurrently Maintainable (a data center that allows concurrent maintenance or replacement and
multiple independent distribution on a planned basis without the need of data center shutdown)
4) Tier 4: Fault Tolerant (a data center that remains functional when there is any operation error taking
place, whether on a planned or unplanned basis, without impacting the normal operation of the data
center)
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Opinion of the Independent Financial Advisor Reg
Regarding
arding Acquisition of Assets
INET
INET-IDC3 in Kaeng Khoi District, Saraburi Province
The project site is located on an access road to SCG Kaeng Khoi cement plant in Saraburi
Province, with a distance of about two kilometers from Mittraphap Road Km 15. There are
telecommunication networks (fiber optic cables) of Interlink Communication Plc. and TOT Plc.
stretching along Mittraphap Road
Road, thus allowing INET-IDC3
IDC3 to connect with the telecommunication
networks instantly without the need to make a huge investment in additional network development.
development
Besides, its proximity to a high voltage power line helps to mitigate,, to a certain extent, risk
associated with adequacy of power supply and network system at the project site.
In addition, project
roject site is aanother crucial
ial factor of investment decision. The location of this
project is about 42 meters above mean sea level and is not in the earthquake fault line or never has
been hit by floods or situated in a floodway. It is free of risk from chemical and petrochemical
impacts
pacts and risk involved with nearby community expansion. The project is not less than 100
kilometers away from Bangkok, thus eliminating operational risk incidental to data center
centralization in case of unexpected events such as a protest, flood, power outage, and so on, which
could disrupt service provision of the Bangkok
Bangkok-based INET-IDC1 and INET-IDC
IDC2 to their customers
and business partners. As for the INET
INET-IDC3 project investment plan, the Company expects to use a
total land area of approximately 9.6 rai or 49% of the total leased area (the
the rest of about 10 rai will be
reserved for future business expansion of the Company). The Company plans to construct three
buildings which are a data center, a visitor center and a facility building, together with improvement
im
of land condition and landscape around the project complete with relevant utilities such as road inside
project area, parking lot, entrance checkpoint building, etc. The construction of INET-IDC3
INET
will begin
around early 2016 and take about 12 mon
months5 and the project is expected to be opened to service from
the first quarter of 2017 onwards
onwards.
Overview of the investment in INET
INET-IDC3 is as follows:
-
5
Details of buildings
Data Center
Visitor Center
Facility Building
Improvement
ent of land
condition and landscape
Construction value
Approx. Baht 750
million
Timeline
Construction to begin in
Q1/2016; and opening to
service in Q1/2017
onwards
Since INET-IDC3 is a one-storied
storied reinforced concrete building, it is highly likely that the construction will
take no longer
er than 12 months. The Company will engage a contractor for structural works and equipment
systems, which have been designed by an expert with special skills in data center information technology and
will hire a consulting firm to map out a plan on constru
construction
ction supervision to ensure the construction would be
on track as planned.
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Details of buildings
around the project
- Relevant utilities
Construction value
Timeline
Data Center covers an approximate service area of 2,000 square meters and is capable of
accommodating a data center, a backup center and Cloud Solutions with Data Center Tier 3+ standard
and international standards related to information security under ISO/IEC 27001.
The Data Center Tier 3+ is a standard for measuring a data center’s maximum availability or
minimum downtime, which is in line with the standard of data center at Tier 3 level or higher. At the
same time, the Tier 4 standard may be adopted for some functions in order to further increase the
system’s reliability. That is, when there is any operation error arising, the data center is capable of
repairing or replacing the equipment without disrupting the normal operation, except for some types
of network equipment that need to be maintained on a planned basis.
However, a data center standard must be approved by the certifying organization, i.e. the
Uptime Institute, LLC. Currently, none of the data centers in Thailand have been certified by the
Uptime Institute due to a huge cost of submission of all detailed information of the data center to the
Uptime Institute for certifying. In most cases, project designers will adopt the Uptime Institute’s
guideline to ensure their project designing meets such standard and will also take into account other
relevant factors or components that are compatible with the individual projects. (INET-IDC3 project
is designed by Hewlett-Packard (Thailand) Ltd., a subsidiary of Hewlett Packard Enterprise (HPE)
which is a leading data center designer.)
Visitor Center covers an approximate service area of 1,200 square meters and can serve up to
100 individual and group visitors at the same time.
Facility Building has a total service area of about 3,800 square meters with a capacity to
support the expansion of two data centers at maximum.
The Company intends to install a power system and relevant utilities to support the said data
center. The security system of the project will be divided into two zones which are a common zone for
visitors and a restricted security zone for INET officials and authorized persons in accordance with
specified measures.
INET-IDC3 will be opened to service in Q1/2017 and will be able to support two major
services, Co-Location and Cloud Solutions as follows:
1. Co-Location INET-IDC3 will utilize the data center as a center for rendering services to
business agencies or organizations wishing to present information over the Internet/Intranet network,
both public network and private network. The services offered include:
Co-Location: A service provided to organizations to rent secure and stable space for
their servers
Business Continuity Planning/Disaster Recovery Center: A backup data center for
efficient and secure database management in backup space complete with Internet
and facilities that can support employees’ operation in all critical conditions such as
flood crisis, political turmoil, etc.
INET-IDC’s security system meets international standards with fully-fledged services
available around the clock for leading agencies and corporations in the country.
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2. Cloud Solutions INET-IDC3 allows a sharing of computer resources via Internet
networks under security standards that meet the ISO 27001 and ISO 20000, divided into three
categories:
Infrastructure as a Service (IaaS) is a service that enables the delivery of IT
infrastructures such as server and storage which will reduce users’ IT investment cost
and enable a well-balanced cost and income management.
Platform as a Service (PaaS) is a service that allows users to run applications on the
system without the need for investment in hardware and software.
Software as a Service (SaaS) is a service offered in the form of applications such as
email on cloud, antivirus, etc.
After the opening of INET-IDC3, the Company will gradually install the server racks until
completion of 432 server racks in 2020. Then, the Company plans to develop the existing server racks
of the Co-Location service to be able to increasingly support the Cloud Solutions. The project will
generate a greater service income and higher profitability due to an increased percentage of the Cloud
Solutions service.
1.4
Summary of agreements relating to the asset acquisition transaction
1.4.1 Land rental agreement
Involved
parties
: Siam Cement (Kaeng Khoi) Co., Ltd. (“Lessor”)
Internet Thailand Plc. (“Lessee”)
Crucial
conditions
: - The Lessor agrees to lease to the Lessee and the Lessee agrees to lease from
the Lessor the land located in Thap Kwang Sub-district, Kaeng Khoi District,
Saraburi Province, covering an area of approximately 19 Rai 2 Ngan 20
Square Wah, for establishment of a computer center of the Lessee.
- The lease term shall be 30 years from January 1, 2016 to December 31, 2045.
If, before the expiration of the agreement, the Lessee wishes to extend the land
lease, it shall so notify the Lessor in writing at least 60 days in advance.
- The rental fee shall be payable in advance on a yearly basis.
- The Lessee agrees to allow the Lessor to increase the rental fee every three
years at the rate of 5% of the rental rate of previous year.
- The Lessor shall facilitate and give consent to the Lessee or the person
designated by the Lessee and approved in writing by the Lessor to construct
buildings and public utilities relating to the computer center on the land rented
by the Lessee throughout the lease term under the agreement. The Lessee shall
comply with the standards and regulations on area utilization in the industrial
zone of the Lessor or the working procedures determined by the Lessor and
notified to the Lessee.
- The Lessor shall give consent to the Lessee to construct an access road with a
width of not more than 15 meters to connect to a road designated by the Lessor
to the rented land together with infrastructures relating to the computer center,
whereby the Lessee shall be responsible for the construction cost, license fee,
fees, tax and all other relevant expenses.
- The Lessor shall give consent to employees of the Lessee to inspect, repair,
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examine and maintain all equipment installed by the Lessee in the rented area
everyday on a 24-hour basis, whereby the employees of the Lessee shall
strictly comply with the security regulations determined by the Lessor.
- The Lessee shall solely be responsible for the land lease registration fee, stamp
duty, withholding tax, signboard tax, property tax for the rented area only,
including all expenses on application for approvals from the authorities, water
supply expenses, electricity charge, telephone charge and others.
- Upon expiry of the rental agreement, the Lessee shall dismantle and refurbish
the buildings and remove all types of materials and equipment, earlier installed
by the Lessee in the rented area, within 90 days of receiving a written notice
from the Lessor. The Lessee shall improve the rented area to be in a ready-touse condition, as agreed upon with the Lessor, at the expense of the Lessee.
The IFA is of the opinion that if, upon the expiry of the rental agreement, the Company has
no intention to renew the lease, it will then have the burden of dismantling and removing the materials
and equipment from the rented area as per the conditions specified in the land rental agreement.
However, there may be little or no expense on such building demolition because the dismantling
contractor usually offers to buy the demolition debris such as steel structure, roof, etc. in exchange for
the dismantling cost. Besides, in the financial projection presented in Item 4.1 ‘Fairness of transaction
price’ of this report, we have not assumed that the Company will incur any demolition cost of such
building.
2. Company Profile
2.1 Background
Internet Thailand Plc. (“the Company” or “INET”) was founded on March 1, 1995 in the
name “Internet Thailand Service Center” (ITSC) to commercially provide Internet services. Under the
Cabinet’s command given on May 14, 1996, it was registered as a company on May 13, 1997, with a
paid-in capital of Baht 16 million at a par value of Baht 10 per share. On October 9, 1997, the
Company was granted approval from then Communications Authority of Thailand to become an
Internet Service Provider with an unexpired operator license, providing Internet services to juristic
persons or organizations and individuals. Later, on August 28, 2001, the Company was transformed
into a public company according to the Cabinet’s resolution and its registered capital was increased
before it entered into the Stock Exchange of Thailand on November 14, 2001. The Company currently
has a registered capital of Baht 333,333,333, divided into 333,333,333 shares with a par value of Baht
1 each, and a paid-in capital of Baht 250,020,799, divided into 250,020,799 shares with a par value of
Baht 1 each.
2.2 Business overview
The Company is a provider of comprehensive ICT infrastructure services for businesses and
individuals who want to use ICT as a tool to strengthen their business competitiveness. The Company
offers services ranging from full scope of network connectivity to data center service with full
equipment for those who want an effective service of international standards and cloud computing
system which is used as a tool for enhancing efficiency and effectiveness for business. The
Company’s business can be divided into four major groups as follows:
1. Internet Access Service The Company provides full Internet access services with various
speeds and service areas covering all provinces and allowing users to access the nationwide Internet
networks. Internet service can be connected by various means such as through leased lines and
MetroLAN network connected to offices’ Intranet networks in leading buildings in the middle of
Bangkok. The speed is 10 Mbps on a 10 Gbps. fiber optic network. The Company is committed to
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providing high quality and stable services. Bandwidth is properly managed to satisfy customer needs
with real-time status monitoring, and the technical support team is available 24 hours.
2. Co-Location Service Internet Data Center (INET-IDC) is a service center for various
kinds of services provided to all business organizations or agencies that need to present data through
Internet/Intranet networks, both public and private networks. The service includes:
Co-Location: Renting secure space for servers and other computing hardware; and
Business Continuity Planning/Disaster Recovery Center: Data backup center for
efficient and secure database management and support of operation during critical
conditions such as flood or political crisis.
Both IDCs, at Thai Summit Tower and at Bangkok Thai Tower, run mutual backup systems
in a full redundancy manner through 10 Gbps. Metro Ethernet Ring. The security systems meeting
international standards are equipped for 24-hour service. The services are provided to leading
organizations in Thailand.
3. Cloud Solutions Service Cloud service is a virtual computing service under the
Information Security Management System of ISO 27001 and ISO 20000 Certification, which can be
divided into three categories as follows:
Infrastructure as a Service (IaaS) is a service that enables the delivery of
infrastructures such as server and storage which will reduce users’ IT investment cost
and enable a well-balanced cost and income management.
Platform as a Service (PaaS) is a service that allows users to run applications on the
system without the need for investment in hardware and software.
Software as a Service (SaaS) is a service offered in the form of applications such as
email on cloud, antivirus, etc.
Thus far, the Company has provided public Cloud Solutions service for three years and has
obtained the Security ISO/IEC 27001: 2005 for its data centers at Bangkok Thai Tower and Thai
Summit Tower. Moreover, the Company was the first provider in Thailand to receive the ISO 20001:2011 Cloud Solutions Certification for both data centers at Thai Summit Tower and Bangkok Thai
Tower, thereby ensuring that its clients will be provided with a reliable and quality cloud service. The
Company was also the first Thai provider to receive Cloud Security Alliance - Security, Trust &
Assurance Registry (CSA-STAR) certification, which is an information security standard exclusively
assigned for cloud service. This could bear testimony to its readiness and potential for service
provision. Among its existing clientele are several large corporations which have a potential to
increase their usage of this service. The Company offers an opportunity to the organizations that wish
to use the service to participate in testing the system.
4. EDC Network Pool Service EDC Network Pool is the Credit Card Payment System
Center linked between banks and other merchants through various telecommunications networks such
as landline telephone, mobile phone, and the Internet. Through this service, card transactions can be
done in a safe and flexible manner in all parts of the country.
- 11 -
Shareholding structure of INET Group as at September 30, 2015
99.99%
25%
Mandala Communication Co., Ltd.
75%
Netbay Plc.
Mr. Pichit Wiwatrujirapong
99.99%
Thai Dotcom Co., Ltd.
Details of subsidiaries and associated companies as at September 30, 2015
Name
1. Mandala
Communication
Co., Ltd.
2. Thai Dotcom Co.,
Ltd.
Telecommunications and related
services
10.00
Paid-up
capital
(Baht
million)
5.00
Electronic system development
service
1.00
0.25
3. Netbay Plc.
E-logistics service including
electronic system development and
consulting on telecommunications
and communications
90.00
90.00
Type of business
Registered
capital
(Baht million)
Shareholding (%)
99.99
(held by Mandala
Communication Co.,
Ltd.
25.00
99.99
Revenue structure of INET and its subsidiaries in 2012-2014 and the first nine months of
2015 was as follows:
Consolidated financial statements 1
Type of revenue
2012
2013
2014
Jan-Sep 2015
Baht
million
94.40
%
29.44
Baht
million
98.42
%
25.46
Baht
million
117.11
%
23.04
Baht
million
94.80
%
21.91
73.48
22.92
100.43
25.98
113.54
22.34
83.76
19.36
3. Cloud Solutions Service
38.65
12.05
93.18
24.10
143.62
28.26
167.50
38.71
4. EDC Network Pool
19.24
6.00
20.97
5.42
22.16
4.36
16.25
3.76
75.65
23.59
65.91
17.05
95.80
18.85
62.23
14.38
Total revenues from operating
business
Other income 3
301.42
94.01
378.91
98.01
492.23
96.85
424.54
98.12
19.20
5.99
7.68
1.99
16.01
3.15
8.14
1.88
Total revenues
Share of profit from an associated
company 4
320.62
11.29
100.00
9.14 5
386.59
6.40
100.00
4.20 5
508.24
4.84
100.00
2.61 5
432.68
13.09
100.00
7.88 5
1. Internet Access Service
2. Co-Location Service
5. Other service income
Note:
1
2
Consolidating the Company’s financial statement with the financial statement of its subsidiary,
Mandala Communication Co., Ltd.
- 12 -
2
3
4
5
Including income from software services and sales of computer and relevant equipment.
Consisting of interest income and others.
The Company recognized the share of profit from an associated company by the equity method from
the investment in 40% of registered capital of Netbay Plc. for 2012-2013 and 25% for 2014 and the
first nine months of 2015.
Share of profit from an associated company as % of total revenues of the associated company for
2012-2014 and the first nine months of 2015.
Board of Directors and shareholders
INET Board of Directors, according to Company Affidavit as of October 19, 2015, is
composed of 11 members as follows:
8.
Name
Prof. Dr. Pairash Thajchayapong
Dr. Thaweesak Koanantakool
Mr. Sahas Treetipbut
Ms. Tanwadee Wongterarit
Mr. Aniruth Hiranraks
Dr. Kamthorn Waitayakul
Prof. Emeritus Achara
Chandrachai, Ph.D.
Mr. Aran Permpiboon
9.
Ms. Narumol Wangsatorntanakun
1.
2.
3.
4.
5.
6.
7.
10. Ms. Nilobon Tangprasit
11. Mrs. Morragot Kulatumyotin
Position
Chairman
Director
Director
Director
Director
Director
Independent Director/Chairman of Audit
Committee
Independent Director/Audit Committee
Member
Member
Member
Director and Managing Director
The authorized signatories of the Company are either Prof. Dr. Pairash Thajchayapong or Dr.
Thaweesak Koanantakool to co-sign with any one of three directors, namely Dr. Kamthorn
Waitayakul, Ms. Tanwadee Wongterarit and Mr. Aniruth Hiranraks, with the Company’s seal affixed;
or Dr. Kamthorn Waitayakul to co-sign with either Ms. Tanwadee Wongterarit or Mr. Aniruth
Hiranraks, with the Company’s seal affixed.
Shareholders
As of November 2, 2015 (the latest shareholder register book closing date to determine
rights to attend the EGM No. 1/2015), the Company had a registered capital of Baht
333,333,333 and a paid-up capital of Baht 250,020,799, divided into 250,020,799 ordinary
shares with a par value of Baht 1 each. Details of the shareholders are as follows:
Name
1.
2.
3.
4.
5.
6.
National Science and Technology Development
Agency
CAT Telecom Plc.
TOT Plc.
Thai NVDR Co., Ltd.
Mr. Thawatchai Tantipoj
ABN AMRO Nominees Singapore Pte. Ltd.
- 13 -
Number of
shares
42,500,000
% of total
shares
17.00
40,000,000
40,000,000
8,261,400
4,876,000
4,250,000
16.00
16.00
3.30
1.95
1.70
Number of
shares
3,494,700
3,104,000
3,000,000
2,787,100
152,273,200
97,747,599
250,020,799
Name
7.
8.
9.
10.
11.
Mr. Anurak Boonsawaeng
Mr. Charoen Sasilaksananukul
Mr. Pongsak Huntrakul
Mr. Somchart Namsricharoensuk
Total of top 10 shareholders
Other shareholders
Total
% of total
shares
1.40
1.24
1.20
1.11
60.90
39.10
100.00
Summary of operating results and financial position
Table summarizing operating results and financial position of INET and its subsidiaries
in 2012-2014 and the first nine months of 2015
As at December 31
Statements of financial position
2012
Baht
million
Assets
Current assets
Cash and cash equivalents
Short-term investments
Investments in available for sale
securities
Trade and other receivables - net
Inventories
Other current assets
Total current assets
Non-current assets
Pledged deposits with financial
institutions
Finance lease receivables-net
Withholding tax receivable
Investments in associated company
Leasehold improvements and
equipment-net
Intangible assets-net
Deferred income tax assets-net
Other non-current assets
Total non-current assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Bank overdrafts and short-term
loans from financial institutions
Trade and other payables
Unearned service income
Current portion of liability under
2013
Baht
million
%
As at September
30, 2015
2014
%
Baht
million
%
Baht
million
%
46.35
0.86
187.29
7.39
0.14
29.86
12.31
7.20
1.47
0.86
24.46
3.58
2.32
0.34
6.39
3.29
0.58
0.30
85.01
6.45
9.54
335.50
13.56
1.03
1.52
53.50
78.65
8.53
25.81
132.50
9.42
1.02
3.09
15.88
73.95
4.27
23.38
129.64
7.01
0.40
2.21
12.28
107.23
1.67
15.09
133.67
9.75
0.15
1.37
12.15
3.80
0.61
96.20
11.53
119.82
11.35
112.95
10.27
1.22
36.43
46.99
146.78
0.19
5.81
7.49
23.41
40.66
37.60
472.12
4.87
4.50
56.57
51.47
26.63
659.32
4.88
2.52
62.46
59.93
36.13
695.20
5.45
3.28
63.19
19.88
21.40
15.12
291.62
627.13
3.17
3.41
2.41
46.50
100.00
18.79
21.71
15.06
702.14
834.64
2.25
2.60
1.80
84.12
100.00
37.87
14.64
16.23
925.98
1,055.62
3.59
1.39
1.54
87.72
100.00
36.10
9.28
16.96
966.54
1,100.22
3.28
0.84
1.54
87.85
100.00
-
-
106.90
12.81
242.00
22.93
238.34
21.66
121.71
2.04
-
19.41
0.33
-
155.57
3.37
26.50
18.64
0.40
3.18
130.99
6.61
54.60
12.41
0.63
5.17
118.79
4.19
83.55
10.80
0.38
7.59
- 14 -
As at December 31
Statements of financial position
2012
Baht
million
financial lease agreements
Current portion of long-term loan
from financial institution
Other current liabilities
Total current liabilities
Non-current liabilities
Long-term loan from financial
institution-net
Liability under financial lease
agreements-net
Employee benefit obligations
Other non-current liabilities
Total non-current liabilities
Total liabilities
Shareholders’ equity
Registered share capital
Issued and paid-up share capital
Share premium
Deficit on business combination
under common control of associated
company
Retained earnings (deficit)
Appropriated - Legal reserve
Unappropriated
Other components of shareholders’
equity
Total shareholders’ equity
attributable to owners of parent
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’
equity
Consolidated statements of
comprehensive income
Revenues
Revenues from services
Revenues from sales
Other income
Total revenues
Costs of services
Costs of sales
Gross profit
2013
Baht
million
%
As at September
30, 2015
2014
Baht
million
%
%
Baht
million
%
-
-
-
-
19.01
1.80
21.41
1.95
6.09
129.84
0.97
20.70
9.56
301.90
1.15
36.17
12.95
466.15
1.23
44.16
13.12
479.39
1.19
43.57
-
-
-
-
49.74
4.71
33.08
3.01
-
-
44.59
5.34
70.30
6.66
96.72
8.79
5.79
0.21
6.00
135.84
0.92
0.03
0.96
21.66
5.45
0.21
50.25
352.15
0.65
0.03
6.02
42.19
5.89
0.21
126.13
592.28
0.56
0.02
11.95
56.11
7.09
0.21
137.09
616.49
0.64
0.02
12.46
56.03
333.33
333.33
333.33
333.33
250.02
272.13
-
39.87
43.39
-
250.02
272.13
(9.14)
29.96
32.60
(1.10)
250.02
272.13
(19.21)
23.68
25.78
(1.82)
250.02
272.13
(19.21)
22.72
24.73
(1.75)
24.87
(57.10)
1.37
3.97
(9.10)
0.22
25.49
(54.66)
(1.36)
3.05
(6.55)
(0.16)
25.49
(61.48)
(3.63)
2.41
(5.82)
(0.34)
25.49
(40.85)
(3.86)
2.32
(3.71)
(0.35)
491.29
78.34
482.48
57.81
463.34
43.89
483.73
43.97
491.29
627.13
78.34
100.00
482.48
834.64
57.81
100.00
463.34
1,055.62
43.89
100.00
483.73
1,100.22
43.97
100.00
2012
Baht
million
%
296.33
5.11
19.20
320.64
226.52
3.92
71.00
92.42
1.59
5.99
100.00
70.65
1.22
22.14
- 15 -
As at December 31
2013
2014
Baht
Baht
million
%
million
%
371.72
7.19
7.68
386.59
279.11
5.63
94.17
96.15
1.86
1.99
100.00
72.20
1.46
24.36
482.10
10.13
16.01
508.24
375.00
8.11
109.12
94.86
1.99
3.15
100.00
73.78
1.60
21.47
Nine-month
period
Jan-Sep 2015
Baht
million
%
414.39
10.14
8.14
432.68
310.92
7.77
105.85
95.77
2.34
1.88
100.00
71.86
1.80
24.46
Consolidated statements of
comprehensive income
2012
Baht
million
%
Expenses
Selling expenses
Administrative expenses
Total expenses
Profit (Loss) before share of profit
from associated company
Share of profit from investment in
associated company
Profit before finance costs and tax
income
Finance costs
Profit (Loss) before tax income
Tax income (expenses)
Profit (Loss) for the period
Nine-month
period
Jan-Sep 2015
Baht
million
%
As at December 31
2013
2014
Baht
Baht
million
%
million
%
43.70
60.83
104.53
(14.33)
13.63
18.97
32.60
(4.47)
50.57
52.48
103.05
(1.20)
13.08
13.58
26.66
(0.31)
50.02
62.09
112.11
13.02
9.84
12.22
22.06
2.56
34.45
49.38
83.82
30.17
7.96
11.41
19.37
6.97
11.29
3.52
6.38
1.65
4.84
0.95
13.10
3.03
(3.04)
(0.95)
5.18
1.34
17.86
3.51
43.27
10.00
(3.04)
1.79
(1.25)
(0.95)
0.56
(0.39)
(1.74)
3.44
(0.37)
3.07
(0.45)
0.89
(0.10)
0.79
(17.82)
0.04
(6.85)
(6.81)
(3.51)
0.01
(1.35)
(1.34)
(17.15)
26.12
(5.41)
20.70
(3.96)
6.04
(1.25)
4.78
Consolidated statements of cash flow
Unit: Baht million
Net cash provided from (used in) operating
activities
Net cash provided from (used in) investing
activities
Net cash provided from (used in) financing
activities
Net cash and cash equivalents increased
(decreased)
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note:
2012
(66.77)
2013
49.95
2014
59.07
Jan-Sep 2015
46.08
(9.62)
(187.01)
(207.92)
(22.91)
-
103.02
160.99
(41.25)
(76.39)
(34.04)
12.15
(18.07)
122.74
46.35
46.35
12.31
12.31
24.46
24.46
6.39
Consolidated financial statements for 2012 were audited by Miss Pimjai Manitkajohnkit, CPA
Registration No. 4521, of EY Office Ltd., who is an SEC-approved auditor; consolidated financial
statements for 2013 were audited by Mr. Athipong Athipongsakul, CPA Registration No. 3500, of
ANS Audit Co., Ltd., who is an SEC-approved auditor; and consolidated financial statements for 2014
were audited and interim financial information for the first six months of 2015 ended June 30, 2015
was reviewed by Mr. Yuttapong Chuamuangpan, CPA Registration No. 9445, of ANS Audit Co.,
Ltd., who is an SEC-approved auditor.
Key financial ratios
2012
Liquidity ratio
Current ratio (time)
Quick ratio (time)
Accounts receivable turnover (time)
Average collection period (day)
Inventory turnover (time)
Average age of inventories (day)
Accounts payable turnover (time)
2013
2.58
2.46
4.95
74.00
41.00
8.90
2.42
- 16 -
0.44
0.33
4.63
79.00
43.57
8.38
2.73
2014
0.28
0.22
6.45
57.00
73.32
4.98
3.38
Jan-Sep 2015
0.28
0.24
6.251/
59.00
154.511/
2.36
4.191/
Repayment period (day)
Cash cycle (day)
Profitability ratio
Gross profit margin (%)
Operating income margin (%)
Net profit margin (%)
Return on equity (%)
Efficiency ratio
Return on assets (%)
Return on fixed assets (%)
Asset turnover (time)
Financial policy ratio
Debt to equity ratio (time)
Interest coverage ratio (time)
Dividend payout ratio (%)
/1
Note:
2012
150.56
(67.66)
2013
133.84
(46.46)
2014
108.12
(46.15)
Jan-Sep 2015
87.02
(25.66)
23.55
(4.75)
(0.39)
(0.25)
24.85
(0.32)
0.79
0.63
22.17
2.65
(1.34)
(1.44)
24.93
7.11
4.78
5.831/
(0.20)
18.75
0.51
0.42
14.42
0.53
(0.72)
10.17
0.54
2.561/
19.111/
0.541/
0.28
-
0.73
31.80
-
1.28
6.16
-
1.27
5.46
-
Being annualized for comparison purpose.
Analysis of operating results and financial position
Operating results in 2012-2014
Total revenues of the Company and its subsidiaries in 2012-2014 were Baht 320.64
million, Baht 386.59 million and Baht 508.24 million respectively, growing by Baht 65.95 million or
20.57% in 2013 and Baht 121.65 million or 31.47% in 2014. Revenues from services made up 92% 96% of total revenues. In 2012-2014, revenues from services amounted to Baht 296.33 million, Baht
371.72 million and Baht 482.10 million respectively, up by Baht 75.39 million or 25.44% in 2013 and
Baht 110.38 million or 29.69% in 2014. Revenues from sales were Baht 5.11 million, Baht 7.19
million and Baht 10.13 million in 2012-2014 respectively, derived from sales of computer or relevant
equipment. Other income was Baht 19.20 million, Baht 7.68 million and Baht 16.01 million in 20122014 respectively, mostly comprising interest income and others.
The Company and its subsidiaries could continuously increase revenues from services. In
2013, revenues from services grew by 25.44%, resulting from an opening of a new Internet Data
Center (IDC) and a launch of cloud service. The Company invested in rejuvenation of INET-IDC2 at
Thai Summit Tower and also in phase-2 expansion of INET-IDC1 at Bangkok Thai Tower to serve a
growing number of customers. In 2013, revenues from cloud service jumped by 141.09% from Baht
38.65 million in 2012 to Baht 93.18 million and revenues from IDC service went up by 36.68%. For
2014, revenues from cloud service continued to grow, by 54.13% from 2013 to Baht 143.62 million,
and revenues from IDC service rose by Baht 13.11 million or 13.05%.
Costs of services and costs of sales of the Company and its subsidiaries totaled Baht
230.44 million, Baht 284.74 million and Baht 383.11 million in 2012-2014 respectively, up by Baht
54.30 million or 23.56% in 2013 and Baht 98.37 million or 34.55% in 2014. Gross profit margin
stood at 23.55%, 24.85% and 22.17% in 2012-2014 respectively. The increase in costs of services
resulted from higher costs of electricity after the opening of two new IDCs, license fees for cloud
service, and depreciation cost of IDC. For 2014, there were costs incurred from the equipment supply
and installation project (one time service), together with an increase in costs of sales of goods.
Selling and administrative expenses of the Company and its subsidiaries in 2012-2014
amounted to Baht 104.53 million, Baht 103.05 million and Baht 112.11 million respectively, dropping
- 17 -
by Baht 1.48 million or 1.42% in 2013 and rising by Baht 9.06 million or 8.79% in 2014. In 2013, the
decrease in selling and administrative expenses was ascribed to a drop in administrative expenses of
Baht 8.35 million due to the rejuvenation of office space into service area and the more efficient
utilization of human resources of the Company. At the same time, the subsidiary launched business
expansion, which necessitated an increase in personnel and accordingly led to a rise in selling
expenses of Baht 6.87 million. In 2014, the increase in administrative expenses resulted from a higher
number of employees.
Finance costs of the Company and its subsidiaries mounted from Baht 1.74 million in
2013 to Baht 17.82 million in 2014 due to borrowing from financial institutions for investment in
rejuvenation of INET-IDC2 at Thai Summit Tower and in phase-2 expansion of INET-IDC1 at
Bangkok Thai Tower.
The Company and its subsidiaries posted a net profit (loss) margin in 2012-2014 of Baht
(1.25) million, Baht 3.07 million and Baht (6.81) million, with a net profit (loss) margin of (0.39)%,
0.79% and (1.34)% respectively.
Operating results in the first nine months of 2015
In the first nine months of 2015, the Company and its subsidiaries recorded total revenues
of Baht 432.68 million, up by Baht 59.30 million or 15.88% from Baht 373.38 million in the same
period of 2014. Revenues from services were Baht 414.39 million, an increase of Baht 57.29 million
or 16.04% from Baht 357.10 million in the same period of 2014 thanks to growth of 66.27% in
revenues from cloud service and 12.02% in revenues from Internet access service.
Costs of services and costs of sales totaled Baht 318.69 million in the first nine months of
2015, rising by Baht 43.16 million or 15.66% from Baht 275.53 million in the same period of 2014.
Gross profit margin stood at 24.93%, which was higher than 23.69% recorded in the corresponding
period of 2014. Costs of services increased in tandem with revenue growth and were mainly attributed
to cost of depreciation resulting from recognition of completed projects as assets.
In the first nine months of 2015, selling and administrative expenses amounted to Baht
83.82 million, rising by Baht 4.11 million or 5.16% from Baht 79.71 million in the same period of
2014. Finance costs totaled Baht 17.15 million, compared with Baht 11.99 million in the same period
of 2014. In this period, the Company and its subsidiaries recorded a net profit of Baht 20.70 million,
improving from Baht 8.45 million in the same period of 2014, and a net profit margin of 4.78%,
which was better than 2.26% in the same period of 2014.
Financial position as at the end of 2012-2014
As at the end of 2012-2014, the Company and its subsidiaries had total assets of Baht
627.13 million, Baht 834.64 million and Baht 1,055.62 million respectively, growing by Baht 207.51
million or 33.09% as at end-2013 and Baht 220.98 million or 26.48% as at end-2014. The major item
was leasehold improvements and equipment-net, which accounted for Baht 146.78 million, Baht
472.12 million and Baht 659.32 million or 23.41%, 56.57% and 62.46% of total assets respectively.
The total asset growth in 2013 and 2014 was driven primarily by an increase in leasehold
improvements and equipment-net due to the rejuvenation of IDCs at Bangkok Thai Tower and at Thai
Summit Tower and investment in core network and software of those IDCs. At the same time,
investments in available for sale securities dropped sharply by Baht 180.09 million in 2013 resulting
from sales of investments in debt securities, and by Baht 3.62 million in 2014 due to sales of
investments in equity securities, the proceeds received from which were used as working capital for
the IDC expansion mentioned above.
The Company and its subsidiaries had total liabilities of Baht 135.84 million, Baht 352.15
million and Baht 592.28 million as at the end of 2012-2014 respectively, soaring by Baht 216.31
- 18 -
million or 159.24% as at the end of 2013 and Baht 240.13 million or 68.19% as at the end of 2014.
Such increase in liabilities in 2013-2014 was mainly attributable to the investment in and rejuvenation
of IDCs at Bangkok Thai Tower and Thai Summit Tower which led to an increase in bank overdrafts
and short-term loans from financial institutions of Baht 106.90 million in 2013 and Baht 135.10
million in 2014. Moreover, liability under financial lease agreements increased by Baht 71.09 million
in 2013 and Baht 53.81 million in 2014 due to investments in equipment for IDCs, whereby the
Company had to enter into financial lease agreements with the equipment suppliers. Trade and other
payables rose by Baht 33.86 million in 2013 and declined by Baht 24.58 million in 2014.
As at the end of 2012-2014, the Company and its subsidiaries had total shareholders’
equity of Baht 491.29 million, Baht 482.48 million and Baht 463.34 million respectively, going down
by Baht 8.81 million or 1.79% in 2013 and Baht 19.14 million or 3.97% in 2014. The decrease in
shareholders’ equity in 2013 and 2014 was a result of net loss incurred from operation. Besides, in
2013-2014, the Company recognized a deficit on business combination under common control due to
business restructuring of an associated company, i.e. Netbay Plc. which is 24.99% owned by the
Company, in the amount of Baht 9.14 million and Baht 10.07 million respectively.
Financial position as at September 30, 2015
The Company and its subsidiaries had total assets of Baht 1,100.22 million as at
September 30, 2015, which grew by Baht 44.60 million or 4.22% from Baht 1,055.62 million as at the
end of 2014 due mainly to an increase in leasehold improvements and trade accounts receivable of
Baht 35.88 million and Baht 33.28 million respectively, with a decrease in cash and cash equivalents
of Baht 18.07 million, other current assets of Baht 8.29 million, and pledged deposits with financial
institutions of Baht 6.87 million.
As of September 30, 2015, the Company and its subsidiaries had total liabilities of Baht
616.49 million, rising by Baht 24.21 million or 4.09% from Baht 592.28 million as at the end of 2014
which was caused mainly by an increase in liability under financial lease agreements of Baht 55.38
million, with a decrease in long-term loan from financial institution of Baht 14.26 million and in trade
and other payables of Baht 12.20 million.
Shareholders’ equity stood at Baht 483.73 million as of September 30, 2015, growing by
Baht 20.39 million or 4.40% from Baht 463.34 million as at year-end 2014 as a result of an increase
in net profit in the first nine months of 2015 in the amount of Baht 20.70 million.
As at September 30, 2015, the Company recorded retained deficit of Baht 19.28 million.
The Board of Directors’ Meeting No. 12/2015 on October 15, 2015 resolved to approve and to
propose the Extraordinary General Meeting of Shareholders No. 1/2015, to be held on December 18,
2015, to approve a transfer of legal reserve and share premium to clean up the retained deficit in full.
As a consequence, the Company will not have any retained deficit left and will then be able to pay
dividends to its shareholders if in the future it can generate a net profit from operation in each period
and does not record any accumulated loss.
2.3 Industry situation relating to the Company’s business
The economic situation and changing consumer demand have continuously impacted the ICT
industry particularly in terms of the expansion of and the demand for portable smart devices. The
changing formats of ICT services and self-adjustment of Social Media for Business (SMB) operators,
IT service providers, and corporate and retail consumers in their selection of these products and
services have inevitably led to growing trend of mobility along with IT consumerization. Growth and
usage of ICT have been driven by the big four trends: cloud computing, mobility, social business and
big data.
- 19 -
Cloud Computing has increasingly played a vital role in people’s way of life today. It has
been among the ten hottest technologies successively since 2009 and continues to follow such trend.
As forecast by International Data Corporation,6 the worldwide spending on cloud computing service
will surge from USD 25 billion in 2011 to USD 100 billion in 2016, representing a compound annual
growth rate of 30% which is six-folds faster than growth in the traditional IT spending or investments
in hardware and software of the individual entities. The current computer application has shifted from
the personal computers (PCs) age to the cloud computing era which sees an innovation from the
personal server computer technology to a new technology of data storage and processing via cloud
providers over the Internet, whereby users can purchase or rent as much of cloud services as they need
without worrying about management and can access the data from anywhere and at anytime on their
technological devices.
Cloud computing can be categorized into:
1. Private Cloud is invented for use and management within an organization. It can be
installed either inside or outside the organization but is used via a private network. An advantage of
the private cloud computing is its high security due to the organization’s internal control ability, while
a huge cost is its weakness.
2. Public Cloud allows a multi-user sharing of data storage and processing system on the
hardware and software infrastructures invested by a cloud provider through the Internet. The cloud
provider assigns the right to use the system’s resources to each user. Public cloud has become more
popular today, propelled by growth in number of Internet users and also in smart phones and tablets
which have boosted users’ demand for data access anywhere anytime.
There are three types of cloud computing service as follows:
1. Software as a Service (SaaS) such as Salesforce or Google Apps contributes the largest
proportion of cloud computing service since SaaS is a delivery model that is appropriate for smallscale companies with a limited capability to create their own software and bears a low risk.
2. Infrastructure as a Service (IaaS) boasts the highest growth and enables cloud computing
to play an increasingly pivotal role when compared with other cloud types. This is because IaaS
providers help store, process and back up data during emergency events and users are able to increase
and decrease space as desired without the need to invest in their own hardware.
3. Platform as a Service (PaaS) provides facilities to support application development. It has
a good growth prospect but still captures a small proportion because the tools and templates for
6
International Data Corporation (a research and consulting firm)
- 20 -
software development offered by providers might not meet users’ requirements, making PaaS less
flexible.
Growth in cloud computing market
Based on Techaisle’s7 market survey and assessment, the global cloud computing market
value in 2012-2016 will grow to USD 23 billion. North America is the biggest cloud computing
service user with as high as 61% market share, indicating that it is home to providers of various
applications via computers and equipment, smart phones and tablet PCs, as well as IT-related
operators or other businesses that still have to rely on IT system. It is followed by Western Europe
(16%) and Asia Pacific (14%). Moreover, it is notable that Japan’s market share alone grew by as
much as 3%, reflecting its role as an IT center. Japan’s market value is equal to that of the whole
South America continent and is higher than that of the entire Eastern Europe. Apparently, the world
cloud computing market grew by leaps and bounds from USD 17.400 billion in 2009 to USD 44.200
billion in 2013. At the same time, there was a change in the income structure where the market share
of cloud computing that acts as a server, storage and application development mechanism expanded
remarkably in 2013 relative to 2009. Still, it does not imply that revenues from other cloud types went
down since the overall market value grew by almost 2.5 times in only four years. Revenues from all
cloud computing business segments have increased, but with faster growth in the three major cloud
types described above. This suggests a rapid increase in application development, driven by
processing via the cloud computing network and growth in volume of data created from various
applications together with the fast growing popularity of app usage, thereby resulting in a greater use
of storage space and requiring a larger size of hardware for data processing.
Public cloud is playing an increasingly important role, especially in small-scale businesses,
due to cost factor. Most organizations are currently utilizing only 30% - 40% of their hard disk space,
with some being duplicated data, thus making such computer usage not worth their IT investment.
Besides, small enterprises are not capable of fully meeting their IT requirements due to funding
constraints. As such, cloud computing can well address their needs, enabling them to substantially cut
down their IT investment costs.
Nonetheless, the adoption of cloud computing in Thailand remains at a low level when
compared with other countries such as China, which is a large economy with big telecommunications
companies, and India, which has leading Internet providers or e-commerce operators. These two
nations therefore spend more on cloud computing than other regions. Compared with other Asian
countries like Singapore, Hong Kong, Taiwan and Malaysia whose cloud computing spending is in a
range of USD 1 billion - 2.5 billion, Thailand still trails after these countries in terms of cloud
computing readiness.
In addition, IMC Institute, an IT research, survey and training house in Thailand, has
conducted a survey on cloud computing readiness of government and private agencies in Thailand.
The survey-based research, titled “Cloud Computing in Thailand Readiness Survey 2014,” was
conducted among executives, directors/managers, and officials in both IT and non-IT fields from 177
government agencies and private organizations. Respondents were from various business sectors,
comprising IT business, 26%; finance & banking, 12%; manufacturing, 10%; government agencies,
9%; etc.
7
Techaisle, LLC (a research and consulting firm)
- 21 -
Source: IMC Institute
The survey result shows that cloud computing is being increasingly adopted in Thailand,
especially in the form of Infrastructure as a Service (IaaS) and Software as a Service (SaaS) whose
number of local providers has been growing. There is no information revealing any providers of
Platform as a Service (PaaS) yet in the country. It is found from the survey result analysis that 81
surveyed agencies, or 45.76% of the total 177 respondents, plan to adopt the public cloud and a
majority 66.67% of them will adopt IaaS, followed by SaaS, 60.49%, and PaaS, 39.51%.
Plan on Public Cloud Adoption
33.33%
39.51%
60.49%
45.76%
54.24%
66.67%
60.49%
39.51%
IaaS
Planning to adopt (81 respondents)
PaaS
No
No plan to adopt (96 respondents)
- 22 -
Yes
SaaS
Opinion of the Independent Financial Advisor Reg
Regarding
arding Acquisition of Assets
Iaas Public Providers: Respondents are considered to use
On the side of demand for IaaS Cloud Solutions, the survey result,, divided into ‘already used’
and ‘plan to use’ groups, shows that the leading global provider Microsoft Azure ranks the first most
adopted IaaS provider. Among Thai providers only, INET
INET, combined with G-Cloud,
Cloud,8 ranks as the top
provider and True IDC (True
True Internet Data Center Co., Ltd.) is in the sec
second
ond place.
he government
government’s digital economy policy will be pushed for and promoted as a
Moreover, the
driver of the national economic advancement by applying information technology to economic and
social activities in order to enhance efficiency and create va
value
lue added to the country’s GDP to be in
pace with the current global trend
trend. This will help to stimulate demand for IT infrastructure. After the
advent of ASEAN Economic Community (AEC) in late 2015, based on the country’s geographical
characteristics coupled
ed with the expansion of dual
dual-track railway from the south
outhern part of China to
ASEAN region, Thailand will likely become a hhub for trade and telecommunications as propelled by
the following four major contributing factors:
1) A positive response to ccloud computing technology;
2) Need for a disaster recovery
ecovery (DR) center;
3) The government’s policy to promote data center development by private sector by granting
investment incentives and encouraging state agencies to use the data center service; and
4) Greater
reater acceptability of IT outsourcing in Thailand which helps to boost demand for data
center space.
8
INET is presently a provider of cloud services to Electronicc Government Agency (Public Organization)
(EGA) which acts as a government cloud (G-Cloud) service provider for other state agencies.
- 23 -
Source: BroadGroup
Based on a survey on data center service supply conducted by BroadGroup9 in four ASEAN
member states, namely Singapore, Malaysia, Thailand and Indonesia, the data center growth
estimation for 2012-2015 suggests that the overall data center market of the four countries have grown
by leaps and bounds. Among them, Thailand’s data center growth ranks second after Indonesia’s.
However, classified by size of the data center, Thailand has the smallest data center space compared
with those of the other three countries.
Data Center and Managed Service Market Value, by Type of Service
Value
(Baht million)
Type of Service
Value/
2014
Value/
2016
Source: National Science and Technology Development Agency (NSTDA)
Moreover, on August 3, 2015, Ministry of Information and Communication Technology and
NSTDA released a survey result on market value of software, computers and TV signal receivers in
Thailand in 2014 and a forecast for 2015. The overall data center and managed service market in 2015
is expected to grow by around 23.1%, with a total market value of Baht 5,731 million. Classified by
type of service, IaaS will grow robustly by 33.6% with a total value of Baht 2,341 million and CoLocation service will expand by 19.7% with a total value of Baht 2,201 million.
9
BroadGroup (a research and consulting firm)
- 24 -
3. Reasonableness and benefits of the transaction
3.1 Reasonableness and benefits of the transaction
The Company intends to construct INET-IDC3 to support the expansion of its Co-Location
and Cloud Solutions services and utilize the data center as a backup center for its Cloud Solutions and
also as a backup center for its clients. Thailand’s cloud computing business has shown a good growth
prospect and played a more vital role particularly after the 2011 flood crisis. At the same time, the
current government has a policy to drive the economy by employing digital technology to enhance
efficiency and increase value added to the country’s GDP. INET itself foresees business opportunity
to step ahead as one of the first cloud service providers in Thailand and also as a market leader.
During 2012-2014, the Company invested in rejuvenation and expansion of its two existing internet
data centers, at Bangkok Thai Tower and at Thai Summit Tower, thereby resulting in consistent
growth in the Co-Location services and Cloud Solutions through these two IDCs in terms of both
number of users and revenues from services. In particular, INET’s Cloud Solutions revenue increased
sharply by 141.09% from Baht 38.65 million in 2012 to Baht 93.18 million in 2013 and further by
54.13% to Baht 143.62 million in 2014. In the first nine months of 2015, such revenue surged 66.27%
to Baht 167.50 million. For 2015, the Company is targeting total revenue growth of approximately
20% - 30% from 2014.
With its robust growth and more crucial role, cloud computing allows users to use computers
online without need for substantial resources and enormous investment in management of IT
resources and infrastructures, while helping to increase working flexibility and speed and reduce
management costs for customers or organizations. As a consequence, cloud computing has been
growing significantly over the past years and has drawn a greater number of players both at home and
from abroad. Therefore, the Company needs speedy development in a bid to sustain its leadership in
the cloud market and capture a larger market share.
The investment in construction of INET-IDC3 could pave the way for the Company to
achieve the above mentioned goal. The key success factors of this business are data security and
service stability. INET is among the pioneers of cloud computing service provision in Thailand, with
high standards of security and stability. It was the first Thai provider to obtain Cloud Security
Alliance - Security, Trust & Assurance Registry (CSA-STAR) certification, which is an information
security standard exclusively for cloud service. This could bear testimony to the Company’s readiness
and potential for advancing to a comprehensive cloud service provider. The Company also received
the ISO 27001 information security standard certification and has all along gained its customers’ trust.
Under its business plan, the Company will set up the third data center in the area outside of Bangkok
or at least 100 kilometers away from Bangkok. In this respect, it has chosen Saraburi Province as the
site of its INET-IDC3 project, to be situated on land of approximately 19-2-20 Rai located on access
road of Siam Cement (Kaeng Khoi) Co., Ltd. in Thap Kwang Sub-district, Kaeng Khoi District,
Saraburi Province, under a 30-year land rental agreement signed with Siam Cement (Kaeng Khoi)
Co., Ltd. Such land can sufficiently accommodate the business expansion in the future.
At present, there are target customers expressing interest in utilizing the Company’s INETIDC3 as their disaster recovery site or already renting part of the space from the Company, through
both letter of intent and verbal notice from several customers and business partners which make up
more than 60% of total service space of INET-IDC3. Therefore, it is likely that after the opening to
service, the Company can rest assured that it will earn stable income to a certain degree, which will
help lessen risk from this investment.
Besides, the investment in construction of INET-IDC3 in addition to the existing two data
centers, all of which will be linked together, will help to further strengthen the data stability and
security and, thus, enhance the Company’s competitive edge so that it would be ready for the
anticipated stiffer competition in the future.
- 25 -
3.2 Benefits and impacts of the transaction
1) Benefits of the transaction
1.1) Increase of market share and retaining of market leadership position
Today, cloud computing services are growing by leaps and bounds across the globe,
including in Thailand, whose cloud market grew by 25% in 2014 (source: Frost & Sullivan10
2013) and is forecast to expand by roughly 34% in 2015 (source: Ministry of Information and
Communication Technology and NSTDA). This is because cloud computing technology has
become increasingly crucial to people’s way of life, helping not only to manage information
for an easy use and access but also to considerably save IT investment cost. Furthermore, the
government’s policy to promote digital economy11 leads to growing demand for IT
infrastructures, which corresponds with the forecast of significant growth in cloud computing
business, while also leading to an increased number of competitors in the future.
The investment in INET-IDC3 project will enable the Company to develop its services so
as to address the growing market demand in the future, retain its leadership position in the
cloud computing market and maintain its existing market share, as well as boost the market
share as targeted. Presently, there are still a small number of players in this business.
1.2) Expansion of customer base and increase of revenues in the future
The investment in INET-IDC3 project will help strengthen confidence in the
Company’s services among both existing and new customers and will increase the Company’s
capacity to serve customers in Co-Location and cloud computing. The Company will
additionally install 432 server racks, representing an increase of 95.6% from the existing 452
server racks to a total of 884 server racks, thereby resulting in service revenue growth in the
future. It is expected that the Company will begin generating revenue from such project as
from 2017. Under the financial projection, the project will bring in revenue from services of
around Baht 167 million - Baht 1,010 million a year. In 2014 and 9M/2015, the Company
recorded revenue from such services of Baht 257 million and Baht 251 million respectively
(inclusive of revenue earned after the rejuvenation of INET-IDC1 and INET-IDC2).
1.3) Creation of competitive advantage for the Company
The INET-IDC3 project is an investment in service infrastructure to enable the
Company to offer a more comprehensive range of services. Its two existing data centers in
Bangkok, located in the heart of the city at Thai Summit Tower and Bangkok Thai Tower,
and the new INET-IDC3 will be linked together in order to strengthen the data stability and
security. The Company will then be able to provide its Cloud Solutions, including private
cloud, public cloud and hyper cloud, to all target groups. The upgrade and increase of its
Internet service efficiency will build customer satisfaction and confidence and relatively
enable the Company to generate competitive advantage and organic growth so as to gear up
for the anticipated severe competition in the future.
1.4) An opportunity for shareholders to receive a favorable rate of return
The Company has redefined its policy on business operation as an IaaS Internet Service
Provider (ISP) by changing from an engineering company to a service company since 2014. It
10
11
Frost & Sullivan, Inc. (a research and consulting firm)
Digital economy refers to an IT-based economy that accentuates use of information technology for
economic activities and several sectors in an economic system.
- 26 -
focuses on Cloud Solutions implemented on large-scale infrastructure with international
standard certification and has consistently developed new services. The Company also
adheres to the principles of IT service provision that emphasizes flexibility and speed to
ensure its service efficiency and competitiveness in business arena with approved security
standard and customer satisfaction.
The Company is aware that, apart from the change of service format mentioned above,
the investment in INET-IDC3 will help support and further develop the business in which it
has expertise. Based on the financial projection, INET-IDC3 will generate a net profit of
approximately Baht 138 million - Baht 511 million a year (excluding the operating results in
2016-2017). The profit earned in the first eight years of project operation will be taxexempted since it is highly likely that the project will be granted tax incentives under
investment promotion from BOI. When aggregating with profit from the Company’s existing
operation, which has been improving, it is expected that the investment in this project will
help to increase its overall profit and enable the Company to pay a favorable rate of dividend
to its shareholders.
The Company has since 2011 not made any dividend payment to its shareholders as it
still recorded the retained deficit. However, it will seek approval from the Extraordinary
General Meeting of Shareholders No. 1/2015 (the same meeting at which it will propose the
investment in INET-IDC3 for approval) to transfer legal reserve and share premium to clean
up the retained deficit in full. As a consequence, the Company will not have any retained
deficit left and will then be able to pay dividends to its shareholders if in the future it can
generate a net profit from operation in each period and does not record any accumulated loss.
The Company has a policy to pay dividends at not less than 30% of net profit, given
there are not any other necessary factors and subject to the economic condition and future
business operation of the Company and its subsidiaries and provided that such dividend
payment will not pose any impact on the usual business operation of the Company.
In the operation of INET-IDC3 project, if the Company is able to operate the project
according to the established business plan, it will generate a satisfactory rate of return
throughout the project life with a consistent improvement in the overall performance. Based
on an analysis of financial projection of INET-IDC3 project, it is found that the project has a
net present value of free cash flow of Baht 2,945 million with a payback period of 4.63 years.
The project IRR is estimated at 39.37% per year, which is higher than the estimated cost of
financing of 6.28%, thus providing a favorable rate of return for the Company and its
shareholders in the future.
1.5) An opportunity to obtain promotional privileges from state agency
INET-IDC3 project is at a preparatory step to file an application for promotional
privileges under the investment promotion law from the Board of Investment (BOI). The
incentives will include exemption from import duty on imported equipment, exemption from
corporate income tax for eight years from the first date of income earning, application of loss
(if any) incurred during the promotion period to reduce net profit generated for a period of not
exceeding five years after the income tax exemption period, and exclusion of dividend
received from the promoted activities from taxable income calculation throughout the income
tax exemption period.
It is highly likely that the Company will be granted such investment incentives before
the project starts commercial operation in Q1/2017 because this is already a BOI-promoted
business. The Company is preparing to file an application for promotional privileges from the
BOI for both the Co-Location and the Cloud Solutions services. By obtaining the BOI
promotion, the project will be able to generate a higher net profit and make a higher rate of
- 27 -
dividend payment than in the case of non-BOI promotion and the Company and its
shareholders will accordingly receive a greater return from investment.
2) Impacts and risks from the transaction
2.1) Risk associated with higher debt burden and interest expenses
Funding to cover investment cost of INET-IDC3 project of approximately Baht 750
million will mainly come from borrowing from external sources unrelated to the Company,
comprising issuance of debentures for offering to the public or via private placement,
execution of financial lease agreements for network equipment procurement with financing
companies, etc. As such, the Company will bear a huge amount of debts and interest
expenses. As of September 30, 2015, it recorded interest-bearing debts of Baht 473.10
million, with the interest-bearing debt to equity ratio standing at 0.98 times. After aggregating
with such new debt of this project, its total liabilities will soar to Baht 1,223.10 million and
the interest-bearing debt to equity ratio will edge up to 2.53 times, which is a high level. It
will bear interest expenses in the next three years of around Baht 12.02 million - Baht 32.17
million per year.
The said huge debt burden could put the Company at risk from loan default which will
consequently impact its financial status and creditworthiness. The Company may also be
exposed to risk from interest rate fluctuation, resulting in a higher cost of project operation.
However, the existing loan agreements of the Company do not impose any financial
covenant that must be fulfilled by the Company. According to the financial projection of
INET-IDC3 which is expected to generate a net profit for the Company at around Baht 138
million - 511 million per year (exclusive of the operating results in 2016-2017 which will be
the initial period of operation), the Company will consequently have higher shareholders’
equity due to an annual increase in its retained earnings. It is thus believed that the
Company’s interest-bearing debt to equity ratio will likely decline.
Besides, the debenture issuance is subject to prior approval from the shareholders’
meeting of the Company. It will propose the Extraordinary General Meeting of Shareholders
No. 1/2015, to be held on December 18, 2015, to consider and approve the issuance and
offering of debentures in the total amount and outstanding value of not more than Baht 500
million at any time, with a tenure of not over 10 years, to be offered for sale at one time
and/or several times and/or as a project and/or on a revolving basis and carrying interest rate
based on market condition at the time of each issuance and offering of the debentures as well
as other relevant factors.
The Company may bear risk associated with interest rate fluctuation, which will push
up cost of each debenture issuance, and risk involved with debenture repayment due to
mismatch between the debenture redemption or maturity and the cash flow available for such
debenture repayment in the future. The mobilization of funds or issuance of debentures on a
revolving basis to repay the maturing debentures will still depend on money market condition
and interest rate trend as well as the Company’s financial position at the time of each
debenture issuance.
Moreover, the Company may in the future mobilize funds by way of, for instance,
increasing capital to repay the debentures or raising loans to invest in this project. Such
capital increase will cause an earnings dilution effect and/or control dilution effect to the
shareholders as well as affect share price in case the offer price is lower than the market price.
Nonetheless, the projection of cash flow from yearly operation shows that the project
has adequate cash flow for loan repayment throughout the project life.
- 28 -
2.2) Risk from failure to achieve the expected rate of return
The Company estimates the total investment value of INET-IDC3 project at Baht 750
million, with a construction and test-run period of about one year. Construction is expected to
start in early 2016 and the project will be ready for opening to service by Q1/2017. The
Company may be exposed to risk from cost overrun, which will lead to the need for additional
funding or borrowing to cover the excess cost of construction. Furthermore, in case the
interest rate is higher than the estimation, it will push up the overall costs and expenses of the
project. There will also be a potential risk from project delay, thus likely leading to a delay in
opening to service or a loss of opportunity to compete in the business or to acquire customers
from launch of services before competitors. These factors will result in failure to achieve the
expected rate of return.
However, the Company and the IFA view that such construction plan is appropriate and
viable in terms of both investment value and construction period. This is due to the fact that
the project cost has been carefully estimated by an experienced specialist and that the
construction of a data center in general takes no longer than 12 months since it is only a onestoried reinforced concrete building. The Company will engage a contractor for structural
works and equipment systems, which have been designed by an expert with special skills in
data center information technology and will hire a consulting firm to map out a plan on
construction supervision to ensure the construction would be on track.
In addition, a success in this project implementation depends not only on readiness,
specifications of properties used for service provision, sales capability, marketing and project
management, but also on other external factors that are beyond control by the Company’s
management such as economic and political situation, industry growth trend, target groups’
demand for usage of space and service, technological changes, and so forth. Given that these
factors become unfavorable, there could be adverse impacts on the project operation in the
future, hence likely resulting in failure to achieve the expected rate of return.
2.3) Risk associated with changes in information technology
Considering the fast-changing nature of information technology, if the Company is
unable to keep abreast of and timely adapt to such technological changes in order to deliver
services to its customers efficiently and in pace with changes in the industry, this may lead
customers to shift to other providers and, thus, may affect number of clientele and total
revenues of the Company.
However, the data center service business offers backup center and Co-Location
services by renting server space to business agencies or organizations that require data
security and stability, and also provides Cloud Solutions that are becoming popular in the
world of business, allowing users to access information over the Internet from anywhere and
at anytime. The Company offers cloud services to customers to use the IT infrastructure
(IaaS) or run their applications on the cloud system of the Company (PaaS), or use various
applications offered by the Company on the cloud such as email on cloud, antivirus, etc.
(SaaS). These services basically play a pivotal role in current business operation. Therefore,
data accessibility and data backup have become considerably essential. The Company
believes that it will be able to efficiently manage the changing technology for data center
service business since it has closely followed up news, information and development of
industries relevant to this business. Its personnel are skillful and able to adapt to changes as
well as deliver services that are in market demand in order not to lose business opportunity or
competitive edge over rivals.
- 29 -
3) Risk involved with failure to obtain approval from the shareholders’ meeting for the
issuance and offering of debentures that will be a funding source for this transaction
The issuance and offering of debentures of the Company is subject to prior approval from the
Extraordinary General Meeting of Shareholders (EGM) No. 1/2015, to be held on December
18, 2015. In the case where the EGM approves the asset acquisition transaction arising from
the investment in construction of INET-IDC3, but does not approve the said issuance and
offering of debentures, the Company will still proceed with the investment in construction of
INET-IDC3. In this case, it may have to seek other funding alternatives such as its internal
cash flow, capital increase by way of public offering and/or rights issue, borrowing from
financial institutions, and so forth. In view of the implications of these funding methods, the
issuance of new shares may create control dilution, earnings dilution and price dilution effects
on the existing shareholders (given that the offering price is lower than market price). These
funding methods may be more time-consuming than the issuance of debentures and may
involve risk from mismatch between fund availability and project construction plan. Besides,
if the Company chooses to raise funds from short-term and/or long-term borrowing from
financial institutions, the Company and its shareholders may be affected by higher debt
burden and interest expenses in case the loan interest rate is higher than the debentures’
interest rate.
In our opinion, it is less likely that the shareholders will not approve the issuance and offering
of debentures based on the reasons that the Company has a clear objective of fund application,
i.e. for financing the investment in construction of INET-IDC3 which will generate favorable
returns for the shareholders, and that the financial cost of debenture issuance is lower than
other fund raising methods.
3.3
Adequacy of funding sources for asset acquisition
Funding for the construction of INET-IDC3 and investment in various assets in the project will
come from issuance of debentures, execution of financial lease agreements and borrowing from
external parties unrelated to the Company, as tabulated follows:
Funding source
(Unit: Baht
million)
1. Debentures
Building
construction
100.00
Exterior
Core network and
Cloud
Working
architectural power system of equipment capital and
work and
Tier3+
others
power system
200.00
200.00
-
Total
500.00
2. Financial lease
agreements
-
-
130.80
104.00
-
234.80
3. Short-term
loans
-
-
-
-
15.20
15.20
100.00
200.00
330.80
104.00
15.20
750.00
Total
Note: The Company may change the funding sources and amount of funds required for investment in each asset
type from those indicated in the above table as deemed fit and primarily for the benefit of the Company.
The major funding sources will include debentures (unsecured) and financial lease agreements.
The Company will seek approval from the Extraordinary General Meeting of Shareholders No.
1/2015, to be held on December 18, 2015, for the issuance and offering of debentures in the total
amount and outstanding value of not more than Baht 500 million at any time, with a tenure of not over
10 years, to be offered for sale at one time and/or several times and/or as a project and/or on a
revolving basis and carrying interest rate based on market condition at the time of each issuance and
offering of the debentures as well as other relevant factors. The Company initially expects to complete
the debenture issuance and offering by 2016 to match the INET-IDC3 construction plan, and also
- 30 -
expects to draw the interest of investors and be able to sell the debentures in full amount as required
by the Company.
Moreover, the Company will execute financial lease agreements in order to lease network
equipment for the project with financing companies which are not its connected persons. Financial
lease agreement is a type of funding by which the Company will gradually pay for the assets in the
form of rental fees throughout the lease period. In doing so, the Company needs not make a huge
investment in the initial period in the network equipment for the project which includes server,
storage, uninterruptible power supply (UPS), etc. At the same time, payment for building construction
and area improvement will be gradually made based on percentage of completion. Therefore, the
Company has adequate funding sources for the investment in this project.
- 31 -
4. Fairness of price and conditions for the transaction
4.1 Fairness of transaction price
The investment in the construction of INET-IDC3 that will be proposed for approval from the
Extraordinary General Meeting of Shareholders No. 1/2015 aims to support the expansion of CoLocation and Cloud Solutions services of the Company and utilize the data center as a backup center
for its cloud services and also as a backup center for its clients, which corresponds with the
Company’s goal to retain its leadership position in the cloud computing market. INET-IDC3 project
will be constructed on land of approximately 19-2-20 Rai located on access road of Siam Cement
(Kaeng Khoi) Co., Ltd. in Thap Kwang Sub-district, Kaeng Khoi District, Saraburi Province, under
a long-term land rental agreement signed with Siam Cement (Kaeng Khoi) Co., Ltd., as the landlord,
for a 30-year term from January 1, 2016 to December 31, 2045. The total investment cost is
approximately Baht 750 million, comprising cost of building construction and area improvement of
about Baht 300 million (including land rental fee throughout the agreement term of Baht 40.7
million), investment in infrastructures such as core network and relevant public utilities of around
Baht 330 million, and investment in Cloud Solutions system of roughly Baht 120 million. The
construction of INET-IDC3 will take about 12 months to complete and the data center will be ready
for opening to service in 2017 onwards.
We have identified reasonableness of the said project investment value based on the project’s
internal rate of return, payback period and net present value derived from net cash flow projection for
a period of 15 years (2016-2030), which is deemed an appropriate length of projection period and
could reflect the usefulness of the invested assets in overall. The projection has been conducted on a
conservative basis. In fact, after such 15-year period, the Company will remain entitled to use the
assets, particularly the equipment that belongs to it, and also to utilize the building and construction
on the leased land until the end of the 30-year lease term. However, due to the fast-changing nature of
IT business, if the time span over which the cash flow is projected is too long, it may result in a
distorted project value. The Company will still be able to use the building, construction and
equipment it has invested and installed or constructed on the leased land for the rest 15 years of the
lease term after such projection period. In this regard, the Company will consider proceeding with the
investment in phase 2-4 project expansion after all of its three IDCs (including INET-IDC3 to be
constructed under this transaction) could achieve a combined service volume of greater than 70% of
the maximum service capacity of the Company.
The cash flow projection for INET-IDC3 is derived based on financial projection prepared by
the Company. The assumptions used in the projection are established based on current operation of
the two existing IDCs. Forecast of all variable factors is made based on the Company’s experience as
a provider of Co-Location and Cloud Solutions services, information available from the project
designer and the project consultant, and analysis of industry situation and factors that affect business
operation. We have reviewed the said projection and adjusted some assumptions to better reflect the
actual operational performance, overall market and competition situation in the industry, and relevant
circumstances at present. Our study is also based on information derived from interviews or inquiries
with the Company’s staff and management as well as analysis of other information relevant to the
data center service.
The financial projection and assumptions adopted by the IFA in identifying appropriateness
of the investment value in this transaction are based on industry and competition situation, economic
and political condition, business environment, and technologies relating to the Company’s operation,
including information and plan on business operation of the Company prevailing at the time of
conducting this study. If these factors change significantly or there are any other factors causing a
material change to the project operation from the established assumptions, it will result in a
consequential change in the project’s net value, IRR and payback period projected herein. The IFA
may not affirm as to whether there will be any potential change or impact arising in the future.
- 32 -
Key assumptions used in the financial projection are as follows:
INET-IDC3 project has undergone a feasibility study by the Company’s management in
conjunction with the project designer. The data center building will cover a total interior space of
approximately 2,000 square meters, capable of accommodating installation of 492 server racks, of
which 432 server racks will serve external customers and 60 server racks will be used for controlling
the relevant network systems.
The occupancy rate and service fee for Co-Location and Cloud Solutions services are the key
assumptions that have a crucial impact on the future cash flow projection. They are estimated based
on the management’s forecast which is in line with the actual occupancy rate and service fee of the
Company and the market survey and assessment conducted by research firms.
Nonetheless, in the current Co-Location and Cloud Solutions business, there is not any
definite median price or market price that can be used as a benchmark for service fee determination
due to the variation in demand from the Company’s target groups, which are medium- to large-scale
corporations, depending on their individual needs such as selection of CPU processor, operating
system or storage, as well as demand for disaster recovery (DR) center, virtualization infrastructure
service, etc.
1) Service income
Service income estimation is divided into two parts according to the type of service:
income from Co-Location service12 and income from Cloud Solutions service.13
Number of server racks for Co-Location and Cloud Solutions services is estimated at 327
racks in the first year of operation. After completion of the installation of 432 server racks in
2020, the Company plans to develop the existing server racks of the Co-Location service to be
able to increasingly support the Cloud Solutions service. The project will generate a greater
service income and higher profitability due to an increased percentage of the Cloud Solutions
service.
Number of virtual machines (VM)14 to support Cloud Solutions service is projected based
on the management’s forecast that is in line with the Company’s past performance. One
server box can accommodate an average of 300 - 500 virtual machines, depending on
customers’ individual needs such as CPU processor, operating system, storage, etc.
Co-Location and Cloud Solutions service fee is estimated based on the management’s
forecast that is derived from the Company’s past performance and also based on prediction by
research firms and market survey and assessment. Under this financial projection, the service
fee is set to be in a range of Baht 12,000 - 48,000 per server rack per month (inclusive of
other service fees) for Co-Location service and of Baht 2,500 - 10,000 per VM per month for
Cloud Solutions. The management forecasts that the service fee for both Co-Location and
Cloud Solutions will drop by an average of 10% per year in the future, considering the typical
nature of IT businesses such as telecommunications, IT and computers, etc. where there
always is continuous technological development and launch of new and better products. In
each year, there will be new-coming players offering better or more efficient services but at
about the same price as the existing providers, thus prompting the latter to adjust their
12
13
14
Co-Location is a type of service that allows users to rent space in a provider’s data center for residing their
servers or other computer devices.
Cloud Solutions refer to a service that allows a sharing of computer resources via Internet networks.
Virtual machine is an operating system that enables the use of software for emulating a server as if there
were multiple computers co-existing in a single server.
- 33 -
strategy by cutting down their service fees or maintaining the fee rate but offering better
services with better efficiency in a bid to retain their customers.
Occupancy rate of Co-Location and Cloud Solutions, which will be launched in 2017, the
first year of project operation, is forecast by the management to be minimal in the initial
period and to gradually increase, assumed to be 25%, 50%, 75% and 90% in Q1-Q4 of 2017
respectively or an average of 60% in 2017. After that, the management projects the occupancy
rate of Co-Location and Cloud Solutions at not less than 90% from 2018 onwards. Currently,
there are numerous customers interested in utilizing INET-IDC3’s space as their disaster
recovery site and renting Co-Location space, some of whom have already submitted a letter of
intent to the Company. Moreover, the management believes that the current fast-growing
cloud computing and the government’s digital economy promotion policy will lead to an
increasing demand for IT infrastructures among small- to large-sized organizations, which
will help boost the occupancy rate of INET-IDC3.
1.1 Income from Co-Location service
Income from Co-Location service is estimated based on key factors such as number of
servers to support the Co-Location service, occupancy rate, and service fee rate. In this
financial projection, it is assumed that a total of 432 server racks15 will be installed to support
the Co-Location and Cloud Solutions services and, in 2020, the Company will gradually
develop the existing server racks of the Co-Location service to be able to support the Cloud
Solutions which are expected to grow in the future (such cloud’s server rack development
plan has been incorporated into this financial projection).
The average occupancy rate is projected to be 60% in 2017 and to increase to 90% in
2018 constant until the end of the projection period. Co-Location service fee is assumed to be
Baht 12,000 - 48,000 per rack per month.
1.2 Income from Cloud Solutions service
Income from Cloud Solutions service is estimated based on key factors such as number of
server racks and number of VMs that can accommodate the Cloud Solutions service,
occupancy rate, and service fee rate. In this financial projection, it is assumed that there will
be an average of 1,183 VMs and the occupancy rate will be 60% in 2017, rising to 90% in
2018 and onwards. Cloud Solutions service fee is set to be in a range of Baht 2,500 - 10,000
per VM per month until the end of the projection period.
Table: Projection of income from Co-Location service and income from Cloud Solutions
service for 2017-2030
Service income (Baht million)
Income from Co-Location service
15
2017
81.79
2018
180.79
2019
172.16
2020
154.38
2021
136.90
2022
121.37
2023
107.58
Income from Cloud Solutions service
85.20
301.32
481.14
621.98
729.85
809.92
866.67
Total service income
166.99
482.11
653.30
776.36
866.74
931.29
974.26
Income from Co-Location service
2024
95.34
2025
84.46
2026
74.81
2027
66.25
2028
58.65
2029
51.90
2030
45.92
Income from Cloud Solutions service
903.98
925.16
933.06
930.13
918.46
899.82
875.72
INET-IDC3 project will start generating income in Q1/2017. In the first two years of operation, the
Company will gradually install the server racks until completion of 432 server racks in 2020. Then, the
Company plans to develop the existing server racks to be able to increasingly support the Cloud Solutions
so as to meet the future rising demand for cloud service.
- 34 -
Total service income
2024
2025
2026
999.32 1,009.62 1,007.88
2027
2028
2029
2030
996.38
977.11
951.72
921.65
2) Service cost
Service cost consists of depreciation of premises and equipment, power energy cost,
maintenance cost, salary and welfare, cloud network connection fee, cloud license fee,
insurance expenses, and land rental fee.
Table: Service cost projection for 2016-2030
(Unit: Baht million)
Total service cost
Total service cost
2016
2017
2018
2019
2020
2021
2022
2023
1.08 153.18 203.33 223.59 247.68 275.54 276.65 282.89
2024
2025
2026
2027
2028
2029
2030
293.12 302.68 312.01 292.34 299.09 308.30 317.68
Note: In 2016, which is the construction period, service cost will consist of land rentals only.
- Depreciation of premises and equipment is calculated at a constant rate by the straightline method according to the estimated useful life of each of the assets. Buildings,
construction and component parts of buildings and relevant equipment are depreciated
over a period of 15 years. Tier 3+ power system, core network system and cloud
network system are depreciated over a period of 10 years, 5 years and 5 years
respectively.
- Power energy cost, service fee and variable fuel tariff (Ft) of large entity are estimated
based on the time of day tariff (TOD Tariff) payable to the Provincial Electricity
Authority at an average rate of Baht 4.00 per unit, which is in line with the actual power
energy cost currently paid by the Company. However, such cost depends on volume of
usage of server and relevant equipment by users at a given period.
- Maintenance cost of premises and equipment per year is projected in a range of 1.00%7.50% of value of each asset type, which is in line with the actual maintenance cost
currently paid by the Company.
- Cloud network connection fee is estimated at the expected payable rate of connection
fee of Baht 1.00 million per month, to be revised up according to inflation rate of about
3.00%, which is in line with the actual network connection fee currently paid by the
Company.
- Cloud license fee is projected, based on the expected rate of compensation payable to
the copyright owner, at a starting rate in early 2017 of 7.00% of income from Cloud
Solutions service, and then decreasing gradually according to the rising number of
VMs, which is in line with the actual cloud license fee currently paid by the Company.
The management forecasts that such fee will be revised down by about 30% for every
one-fold increase of VMs. The cloud license fee in 2017 is estimated at an average of
4.23% of income from Cloud Solutions service and will drop annually to 0.82% of
income from Cloud Solutions service in 2028-2030.
- Insurance expenses consist of insurance for the data center, visitor center, facility
building, power system, and equipment relevant to the provision of Co-Location and
Cloud Solutions services. The management forecasts insurance expenses at a yearly rate
of 0.07% - 0.20% of value of each asset type.
- 35 -
- Land rental fee is projected, according to the long-term land rental agreement signed
with Siam Cement (Kaeng Khoi) Co., Ltd., at Baht 1.08 million in year 1 (2016), to be
increased by 5% every three years.
3) Selling and administrative expenses
Selling and administrative expenses are equal to 20% of total service income of INETIDC3, based on the management’s forecast which is in line with the actual selling and
administrative expenses for Co-Location and Cloud Solutions services paid by the
Company in the past (2014-9M/2015).
4) Interest expenses
Interest on loans for financing the project is estimated to be 6.28% p.a. on average, based
on the maximum interest rate on non-rate debentures of 4.70% p.a., interest rate under
financial lease agreements, and long-term loan rate received from financial institutions
equal to MLR of about 6.51% p.a. (based on average MLR p.a. of four major banks).
5) Income tax
Corporate income tax in 2016-2030 is set to be an average of 10.56% of pre-tax profit.
INET-IDC3 project is expected to be granted promotional privileges from the BOI, which
include an exemption from corporate income tax for eight years from the first date of
commercial income earning. After the end of such tax holiday period, the project is
assumed to bear corporate income tax at a rate of 20%.
6) Working capital
Average receivable collection period
Average payable payment period
60
120
days
days
The projection of average receivable collection period and average payable payment
period is in line with the Company’s policy on working capital management, and actual
average receivable collection and payable payment period in the past.
7) Capital expenditure
- Estimated investment cost in construction of INET-IDC3
Capital expenditure in assets relevant to the construction of INET-IDC3 consists
of cost of construction of a visitor center, a data center and a facility building, cost of
construction of core network system and Tier 3+ power system, and additional
investment in Cloud Solutions system and other related equipment, and is estimated at
Baht 750 million in total, details of which are as follows:
Capital expenditure items
Investment value
(approximate)
Baht 300 million
Tentative construction
period
Q1/2016 to Q4/2016
Core network system and Tier 3+
power system
Baht 331 million
Q4/2016
Cloud network system
Baht 64 million
Q1/2017 to Q1/2018
Visitor center, data center and
facility building
Cloud server & storage system
Baht 30 million
Q3/2017
Next Gen core network system
Baht 10 million
Q3/2017
- 36 -
Investment value
(approximate)
Baht 15 million
Working capital
Total
period
-
Baht 750 million
Capital expenditure in buildings, Tier 3+ power system, core network system
and Cloud Solutions system equipment will be depreciated by the straight line method
over a period of 15 years, 10 years, 5 years and 5 years respectively. When Tier 3+
power system, core network system and Cloud Solutions system equipment are fully
depreciated, the Company will still be able to continue using such equipment.
Moreover, the Company can procure new equipment to replace the one that is worn
out or damaged in accordance with the conditions specified in the financial lease
agreements made with the lessors.
- Estimated additional capital expenditure (2018-2030)
After opening to service in 2018, the project will require additional capital
expenditure in cloud network system and related equipment in every two years and a
half to support the existing Co-Location service so that it could increasingly
accommodate Cloud Solutions service, at an estimated investment cost of not more than
Baht 373 million in total.
Investment value
(approximate)
Baht 373 million
Cloud network system
Total
period
Q3/2018 to Q3/2030
Baht 373 million
Capital expenditure in Cloud Solutions system equipment will be depreciated by
the straight line method over a period of 5 years. When the Cloud Solutions system
equipment is fully depreciated, the Company will still be able to continue using such
equipment. Moreover, the Company can procure new equipment to replace the one that
is worn out or damaged in accordance with the conditions specified in the financial
lease agreements made with the lessors.
8) Discount rate
Discount rate used for estimating present value of net free cash flow of this project is
derived from cost of project investment, which is equal to net cost of debt (Kd* (1-Tax))
or (6.28*(1 - 0.1056)), resulting in a discount rate of 5.62% per year.
Where: 1. The project’s loan interest rate (Kd) is estimated to be 6.28% p.a. on average,
based on the interest rate on non-rate debentures of not exceeding 4.70% p.a.,
interest rate under financial lease agreements, and long-term loan rate received
from financial institutions equal to MLR p.a. (as at November 5, 2015, the
average MLR of four major banks stood at about 6.51% p.a.).
2. Corporate income tax rate is set to be 10.56%, derived from the actual
corporate income tax divided by total earnings before tax throughout the 15year project life. Corporate income tax rate is assumed to be 0% during year 1year 9 of the financial projection (including construction period of one year). It
is expected that the Company will be granted promotional incentives from the
BOI, which include an exemption from corporate income tax for eight years
from the first date of income earning. After that, the corporate income tax will
be equal to 20% constant until the end of the financial projection period.
- 37 -
Table summarizing cash flow projection from INET-IDC3 project operation in 2016-2030
Total revenues
-
2017
167
2018
482
2019
653
2020
776
2021
867
2022
931
2023
974
(1)
(153)
(203)
(224)
(248)
(276)
(277)
(283)
-
(33)
(96)
(131)
(155)
(173)
(186)
(195)
EBIT
Less Income tax
(1)
-
(20)
-
182
-
299
-
373
-
418
-
468
-
497
-
Net profit (loss) from operation after tax
Add: Depreciation
(1)
-
(20)
68
182
81
299
91
373
100
418
108
468
95
497
89
-
(9)
(18)
(14)
(5)
(4)
(3)
0
Less Capital expenditure
Net free cash flow
(631)
(632)
(80)
(40)
(48)
198
(49)
327
(44)
425
(39)
483
(35)
526
(32)
554
PV of net free cash flow
(615)
(37)
172
270
332
357
368
367
Total revenues
2024
2025
2026
2027
2028
2029
2030
999
1,010
1,008
996
977
952
922
Service cost
(293)
(303)
(312)
(292)
(299)
(308)
(318)
Selling and administrative expenses
(200)
(202)
(202)
(199)
(195)
(190)
(287)
EBIT
Less Income tax
506
-
505
89
494
100
505
103
483
99
453
93
522
107
Net profit (loss) from operation after tax
Add: Depreciation
506
85
416
81
394
78
402
47
384
44
360
42
415
40
2
3
4
3
5
5
30
Service cost
Selling and administrative expenses
Add/Less: Working capital
Add/Less: Working capital
2016
Less Capital expenditure
(29)
(26)
(23)
(21)
(19)
(17)
(15)
Net free cash flow
564
474
452
431
414
390
469
PV of net free cash flow
354
282
255
230
209
186
212
Total present value of net free cash flow (Baht million)
IRR (per year)
2,945
39.37%
Payback period (year)
4.63
By using the cost of debt (net of tax) of 5.62% per year as a discount rate, we could estimate
the present value of net free cash flow of this project at Baht 2,945 million, with an IRR of around
39.37% per year which is higher than the cost of financing that is debt of 6.28% (under this financial
projection the Company will not use equity financing for this project) and a payback period of 4.63
years. Such IRR is deemed a favorable rate.
We have additionally conducted a sensitivity analysis on the financial projection that has an
effect on the present value of net free cash flow of the project and the IRR by decreasing/increasing
the yearly service fee rate from the base case rate and decreasing/increasing the occupancy rate from
the base case rate. The project’s net present value, IRR and payback period will become as follows:
- 38 -
1) Decrease of yearly service fee rate
Assumption on decrease of yearly service fee rate
PV of net free cash flow (Baht million)
Decrease of 15% Decrease of 10%
per year
per year
(base case)
1,477
2,945
Project IRR
Decrease of 5%
per year
5,184
30.7%
39.4%
47.2%
5.00
4.63
4.37
2) Occupancy rate
Assumption on occupancy rate
70%
80%
PV of net free cash flow (Baht million)
1,793
Project IRR
100%
2,370
90%
(base case)
2,945
29.1%
34.5%
39.4%
43.9%
5.60
5.04
4.63
4.33
3,522
In the above sensitivity analysis on changes in the financial projection, the yearly service fee
rate is decreased/increased from the base case rate of a decrease of 10% per year in service fee rate to
a decrease of 5% and 15% per year in service fee rate and the occupancy rate from 2018 onwards is
decreased/increased from the base case rate of 90% to 70% and 100%. In the sensitivity case, the
present value of net free cash flow of the project will be in a range of Baht 1,477 million - 5,184
million, with an IRR of 29.1% - 47.2% and a payback period of 4.33 - 5.60 years.
We are of the opinion that, from an analysis of the cash flow projection, the project has a
positive net present value and a favorable rate of return. Thus, the investment in this project at an
approximate cost of Baht 750 million is considered appropriate.
4.2 Appropriateness of conditions for the transaction
The entry into asset acquisition transaction arising from investment in the construction of
INET-IDC3 will take place after approval is obtained from the Extraordinary General Meeting of
Shareholders No. 1/2015 to be held on December 18, 2015. The Company will employ a project
designer, contractor and consulting firm which will supervise and ensure the project is carried out as
planned, in accordance with the procedures for employment and price bidding and based on track
records of the project designer and contractor, to make certain that the project can start commercial
operation by Q1/2017 as targeted. Payment for construction will be made according to percentage of
completion. We view that such payment condition is appropriate and in line with commercial terms in
general.
The entering into a 30-year land rental agreement with an external party unrelated to the
Company is deemed appropriate. Under a long-term rental agreement, the Company will be able to
optimize the use of property (building, construction and equipment) that it will invest in on such
rented land and minimize risk from non-renewal of the agreement (in case of short-term agreement).
Besides, it is specified in the agreement that the Company shall be entitled to renew the agreement by
so notifying the Lessor in writing at least 60 days ahead of expiry of the agreement and shall be
entitled to prematurely terminate the agreement by giving a written notice thereof to the Lessor at
least 60 days in advance. Moreover, such agreement does not require any upfront payment, unlike
other general long-term rental agreements, and rental fee will be paid on a yearly basis, thereby
relieving the Company of the burden to make a huge amount of payment before commencing project
operation.
- 39 -
We deem that the overall conditions for this transaction are appropriate and beneficial to the
Company and provide flexibility in business operation. The said conditions do not cause the Company
to lose any benefit or competitiveness.
5. Conclusion of the Independent Financial Advisor’s opinion
We are of the opinion that the Company will benefit from entry into this transaction by being
able to increase its market share and retain its leadership in the cloud computing market. Moreover, it
will be able to expand the existing and new customer base and grow revenues in the future. By
entering into this transaction, the Company will be able to offer a more comprehensive range of
services, in addition to its two existing data centers in Bangkok. All of the three data centers will be
linked together to enhance the data stability and security. The Company will thereby be able to reach
all target groups and, hence, to generate a sustainable competitive advantage and organic growth so as
to gear up for the anticipated intense competition in the future. Besides, the shareholders will have an
opportunity to receive a favorable rate of return on investment. The investment in this project will
enable the Company to earn a higher profit in overall and pay a favorable rate of dividends to its
shareholders. In addition, INET-IDC3 project is entitled to apply for investment incentives under the
investment promotion law from the BOI, thus resulting in a higher net profit and a higher rate of
dividend payment than in the case of non-BOI promotion.
Nonetheless, there are some potential impacts and downside risks to the Company which
include risk from higher debt burden and interest expenses since the project will be entirely funded by
loans; risk from failure to achieve the expected rate of return due to a delay in project construction
which could cause the Company to lose an opportunity to compete in the business or be faced with
cost overrun or fail to achieve the established business plan; and risk associated with rapid changes in
information technology.
Based on an analysis of cash flow projection of INET-IDC3 project, it is found that if the
Company is able to operate the project according to the established assumptions, it will enjoy the
estimated IRR of around 39.37% per year, which is higher than the cost of financing that is debt of
6.28% (under the financial projection the Company will not use equity financing for this project).
Moreover, the project has a present value of net free cash flow of Baht 2,945 million with a payback
period of 4.63 years, representing a favorable rate of return and a worthwhile investment.
In our opinion, the overall conditions for the transaction are appropriate and beneficial to the
Company and provide flexibility in business operation. The Company will not lose any benefit or
competitive advantage.
Based on the above mentioned rationale, we view that the shareholders will gain benefits
from this transaction and, therefore, recommend that the shareholders should vote in favor of the said
acquisition of assets. The transaction is deemed reasonable with a fair price and fair conditions.
In deciding whether to approve or disapprove the proposed transaction, the shareholders can
consider the above reasons and opinion provided herein by the IFA. The final decision depends
primarily on the shareholders’ individual judgment.
- 40 -
We hereby certify that we have rendered opinion with due care and under professional
standards by paying regard to the interest of the shareholders.
Yours sincerely,
Advisory Plus Company Limited
- Nisaporn Rerkaram (Mrs. Nisaporn Rerkaram)
Managing Director
- Sumalee Tantayaporn (Miss Sumalee Tantayaporn)
Operational Controller
- 41 -

Opinion of the Independent Financial Advisor

Transcription

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