Samart Telcoms

Samart Telecoms Plc (SAMTEL)

 Core profit short of expectations
SAMTEL reported a Bt261m net profit for 1Q13, up 1% YoY. There were two extra items—a Bt78m after-tax gain from trading securities and a Bt37m FX gain. Stripping out the extra items, core profit would be Bt146m, down 36% YoY. Net profit exceeded our expectation by 6%, due to greater extra gains than assumed. But core earning undershot our estimate by 21% on recognition of net other expenses (we had modeled for net other income). Gross profit was 6% above our model.
Result highlights
The YoY drop in core profit was due to the restatement of a tax item in 1Q12—the result of an accounting adjustment for deferred tax. Due to the huge tax shield utilized in 1Q12, the auditor restated the tax item from an expense to a credit in 1Q12 and boosted 1Q12 consolidated net profit by 73% (to Bt261m). Hence, 1Q13 core earnings declined YoY. Note that a QoQ comparison for the quarter wasn’t appropriate in the absence of a restated 4Q12 income statement.
Earnings before tax (EBT) jumped 97% YoY, led by better OPEX control. SG&A dropped 23% YoY. Gross profit rose 37% YoY. SAMTEL recognized lower income from the TOT 3G Phase 1 project—Bt309m in 1Q13 against Bt551m in 4Q12. It installed only 400 new sites during the quarter (for a total of 4,200 installed sites at end-March 2013). The firm signed two new projects in 1Q13—the Department of Correction’s IT System (Bt1.13bn) and TOT’s 3G Co-Site Rental (Bt230m).
Outlook
We estimate a Bt300m net profit for 2Q13, up by 31% YoY and 15% QoQ, driven by recognition of the remaining Bt1.7bn in TOT 3G Phase 1 revenue for 1,070 sites that SAMTEL is to install in 2Q13.
We estimate Bt4bn in 2Q13 revenue, up by 142% YoY and 92% QoQ, led by seven major projects signed before YE12—TOT’s 3G Phase 1 (Bt1.7bn in 2Q13), TOT’s SchoolNet Extension (Bt114m in 2Q13), AOT’s CUTE Outsource (Bt107m in 2Q13), PEA’s AMR Phase 2 (Bt101m in 2Q13), Department of Land’s IT System (Bt67m in 2Q13), PEA’s PortalNet (Bt160m in 2Q13), CAT’s Trunked Radio (Bt80m in 2Q13) and CAT’s USO 2.3 (Bt98m in 2Q13)—and three major projects signed in 1H13—Department of Correction’s IT System (Bt272m in 2Q13), TOT’s 3G Extension (Bt108m in 2Q13) and AOT’s AIMS Network Migration (Bt42m in 2Q13)—and small projects worth Bt1.2bn. 
What’s changed?
We maintain our FY13 net profit forecast unchanged.
Recommendation
Our BUY rating stands, premised on project backlog expansion and a strong FY13 earnings growth profile.