Samart Corporation

Samart Corporation Plc (SAMART)

Net profit above estimate, but core profit fell short
SAMART reported a Bt284m net profit for 3Q12, up by 10% YoY and 22% QoQ. There was a big one-off extra item booked under other income—a Bt68 gain from a debt haircut related to a PortalNet purchase. Excluding this extra gain, core profit would be Bt177m, down by 29% YoY and 24% QoQ. The reported net profit exceeded our estimate by 11%, due to the extra gain, while core earnings missed our model because SG&A and tax expenses were higher than expected. Gross profit was 2% above our projection.

Result highlights
The weaker core profit was due to significantly lower SAMTEL revenue recognition from TOT’s 3G Network Installation Phase 1 project and higher service costs and interest expenses. SAMTEL booked only Bt556m from the 3G Phase 1 contract in 3Q12 against Bt2.6bn in 3Q11—it installed only 200 sites in 3Q12 (it had installed 3,200 sites in total by end-Sept 2012) (see details in our SAMTEL report).
SIM reported a Bt35m net profit, up by 72% YoY and 54% QoQ. Excluding a Bt12m FX gain, its core profit would be Bt22m, up 64% but down 3% QoQ. GM was 17.5% against 15.5% in 3Q11 and 18.5% in 2Q12. The YoY jump in core profit was driven by expansion of domestic smartphone sales, which carry a fat GM.
Other SAMART businesses posted solid YoY rises. Cambodia Air Traffic Services (CAT) reported growth of 8% YoY for revenue and 133% YoY for net profit. Kampot Power Plant (KPP) posted rises of 2% YoY and QoQ for both revenue and net profit. Although One-to-One Contacts’ revenue dived 22% YoY, its net earnings jumped 178% YoY, thanks to more outsourcing jobs and fewer turnkey projects.

Outlook
We estimate a 4Q12 net profit of Bt288m, up by 92% YoY and 13% QoQ, led by earnings expansion at both SAMTEL and SIM. We expect SAMTEL to post higher receipts in 4Q12 from TOT’s 3G Phase 1 project (Bt1.55bn) and that SIM’s smartphone sales will jump and its GM will fatten to 19% for the quarter. SIM’s earnings will recover strongly in FY13 a handset business recovery and the turnaround of its MVNO business. An FY13 profit forecast upgrade for SIM and the likelihood of SAMTEL winning the APPS and TOT 3G Phase 2 projects would would boost to SAMART’s FY13 bottom-line.

What’s changed?
We maintain our FY12 net profit forecast unchanged.

Recommendation
Our BUY rating stands, premised on a strong earnings recovery for SIM earnings and upside from two big projects for SAMTEL.