Samart I-Mobile

Samart I-Mobile Plc (SIM)

Overshot core profit estimate
SIM reported a Bt83m net profit for 4Q12, up 136 QoQ; in 4Q11 it posted a net loss of Bt24m. There was one major extra item—a Bt37m bad debt provision. Stripping out the extra item, core earnings would be Bt115m, up by a robust 500% YoY and 414% QoQ. The 4Q12 bottom-line exceeded our estimate by just 4%, but core profit overshot our estimate by 72%, thanks to lower SG&A than modeled. Sales and gross profit were in line with our estimates. GM was 21.6%, close to our estimate of 22%. After-tax profit was 79% above our projection. 
Result highlights
The jump in core earnings was attributable to a surge in smartphone sales volume (333K, up 93% QoQ), a higher average sales price (Bt2,127, up 93% YoY and 39% QoQ) and a fatter GM, due to a higher proportion of smartphones in handset revenue. The i-Mobile smart-phone, which yields a GM exceeding 20%, represented 70% of handset revenue in 4Q12, up from 42% in 3Q12 and 1% in 1Q12.
Income from the handset business jumped by 68% YoY and 52% QoQ. Content revenue in 4Q12 edged up 2% both YoY and QoQ. Revenue at the MVNO business was Bt27m in 4Q12, down 23% YoY but up 23% QoQ. The gross profit of the handset business jumped by 54% YoY and 65% QoQ while that of the content unit rose by 38% YoY and 400% QoQ. The MVNO posted a Bt3m gross loss for the quarter. GM for domestic handsets jumped to 18% in 4Q12, up from 12.5% in 3Q12.
Outlook
We forecast a 1Q13 net profit of Bt160m, up by 552% YoY and 92% QoQ, led by a further rise in smartphone sales (to 600K, up 80% QoQ), further GM expansion to 23% and a higher average sales price (Bt2,500, up 18% QoQ). We expect earnings recovery momentum to continue through YE13, buoyed by the launches of more handset models—HD screen, quad-core, BSI camera and dragon-trail screen. With a higher proportion of smartphones in the sales mix, we estimate that the average sales price will reach Bt2,700 at YE13 (up 20% YoY). The MVNO is expected to break-even in 4Q13, which would boost the bottom-line.
What’s changed?
We maintain our FY13 net profit forecast unchanged.
Recommendation
Our BUY rating stands, premised on a strong earnings recovery in FY13 and scope for upside from winning a government procurement contract to supply Bt5bn worth of Tablet units to students this year.