Shin Satellite has continued to struggle with its IPStar strategy, according to the company’s first quarter numbers released May 14.

The satellite operator reported about 75,000 IPStar customers after adding 9,000 customers in the 2007 first quarter, which closed March 31.

If those numbers suggest satellite broadband to be a tough sell in Asia, analysts are believing that Shin has its work cut out to make its IPStar strategy a success.

Chirasit Vuttigrai, a satellite equity analyst at DBS Vickers Securities, said in a research note that he did not expect Shin to achieve its goal for subscribers. "We do not think Shin Satellite will meet its 100,000 units sales target for IPStar terminals in 2007," he said. "We forecast only 62,000 units for the period. As long as operations in China and India remain grounded, operating profit will be weak. This is because capacities in China and India account for 26.2 percent and 17.5 percent [respectively] of total IPStar capacity. Australia, New Zealand and Thailand account for only 14.7 percent, 2.2 percent and 6.5 percent, respectively."

The slow progress for IPStar likely will be a prominent issue for Shin Satellite throughout 2007. "Shin Satellite’s prospects remain sluggish," Vuttigrai said. "Sales of IPStar in China have not progressed much, while its India deal may be delayed further. The management expects to conclude negotiations with its partner and commence operations in India by [the end of the second quarter], but we believe it might not happen."

Mayuree Chowvikran, a satellite equity analyst at Siam City Securities similarly was skeptical about the operator’s recent performance.

"My view is neutral with the performance in the first quarter because we did not seen any improvement in China," Chowvikran said. "User terminal sales in China were only 1,000 subscribers in this quarter. I think IPStar may take around one to two years to have an impact in China. The main driver of IPStar business is still in Thailand, Australia and New Zealand, which have lower utilization rates of bandwidth."

In terms of when it might launch the service in India, Chowvikran said "after it has completed the installations of two gateways in India, IPStar can launch the service. We think it is most likely to take place in the third quarter this year. If IPStar can launch in India, the breakeven period will be faster, and I project this will then happen in 2009."

Chowvikran expects IPstar to reach about 111,000 subscribers by the end of 2007.

Colin McCallum, a satellite equity analyst at Credit Suisse was slightly more upbeat about the IPStar numbers, citing recent deals in Australia and New Zealand.

Subsidiary IPStar Australia launched a video-on-demand service via its IPStar broadband satellite network in February, and in New Zealand, Shin Satellite linked up with local telco BayCity Communications in March to sell IPStar services across New Zealand.

The 2007 first quarter "actually saw some hard progress on IPStar, which should ensure that sales numbers pick up again in subsequent quarters," McCallum said in a research note.

However, things will need to pick up on IPStar to help the balance sheet going forward.

"Looking forward, the debt burden of IPStar project is still clearly the big problem for Shin Satellite," McCallum said. "Increasing subscriber numbers throughout the rest of 2007 should, however, drive high operational gearing and share price outperformance. Any positive surprises on the pace of rollout of IPStar dishes would have a significant valuation impact."

Shin Satellite reported revenues from satellite transponders decreased nearly 18 percent in the quarter to 949 million Thai bhat ($29 million) compared to the 2006 first quarter. Shin said there was a decrease in revenue from IPStar caused by a decrease in IPStar user terminal sales.

"Shin Satellite reported an 18.8 percent [quarter-over-quarter] decline in revenue from sales and services in [the 2007 first quarter] due to a 51.8 percent [quarter-over- quarter] decline in revenue from the IPStar project," McCallum said. "Given the early stages of the IPStar project the sale of IPStar user terminals is still a much larger driver of quarterly results than the ongoing airtime revenues, which are collected from the existing subscriber base. Thus, the quarterly revenue picture is expected to remain volatile in the near term."

— Mark Holmes