Samart I-Mobile

Samart I-Mobile Plc (SIM)\\

Core profit in line with estimate
SIM reported a Bt177m net profit for 1Q13, up by 733% YoY and 105% QoQ. Excluding extra gains worth Bt10m—an FX gain, the reversal of a bad debt provision and a trading gain—core earnings would be Bt166m, up by 806% YoY and 41% QoQ. The bottom-line exceeded our model by 4%, thanks to higher extra gains than assumed. Core earnings were in line with our estimate. After-tax profit was 2% lower than our projection. 
Result highlights
The jump in core earnings was attributable to a surge in smartphone sales volume, a higher average sales price and fatter GM. Of the 899K handset units sold in 1Q13, 894K units were i-mobile brand. 381K units of those i-mobile sales were smart phones (against 340K units in 4Q12 and just 1,838 units in 1Q12). The blended average sales price was Bt2,555 (up by 95% YoY and 15% QoQ). The i-mobile average sales price was Bt2,526 (up by 112% YoY and 16% QoQ). Blended GM was 25.1% (against 17.1% in 1Q12 and 21.6% in 4Q12). 
Handset sales were Bt2.2bn, up by 72% YoY and 11% QoQ. Content revenue was Bt224m, down by 13% YoY and 15% QoQ, due to technical problems at mobile operators related to the installation of new software ahead of the launch of 3G-2.1GHz services. MVNO business revenue was Bt30m, up 11% both YoY and QoQ. The gross profit of the handset business was Bt546m, up by 250% YoY and 27% QoQ, while the gross profit of the content unit was Bt36m, flattish YoY but down 45% QoQ. The MVNO posted a Bt7m gross profit, down 42% YoY (a Bt3m gross loss in 4Q12). GM for domestic handset sales jumped to 21.9% in 1Q13 from 8.8% in 1Q12 and 17.9% in 4Q12.
Outlook
We prelliminarily forecast a 2Q13 core profit of Bt200m, up by 775% YoY and 20% QoQ, underpinned by smartphone sales (to 700K, up 84% QoQ), further GM expansion to 28-30% and a higher average sales price (Bt2,800, up 10% QoQ). We expect content revenue to rise at least 20% QoQ because the technical glitches at cellular operators have apparently been fixed. The earnings recovery should sustain momentum through to YE13 with the launches of more smart phone models in May. 
What’s changed?
We maintain our FY13 net profit forecast unchanged. There could be upside to our projection from higher smart phone sales than modeled.
Recommendation
Our BUY rating stands, premised on robust earnings growth in FY13.