Samart I-Mobile

Samart I-Mobile Plc (SIM)

Investment thesis
We reiterate our BUY rating on SIM, premised on robust earnings through 2H13-14 (despite failing to win a slice of the Tablets-for-students procurement), underpinned by handset sales expansion and the MVNO business breaking even in FY14.
SIM failed technical tests for Tablets-for-students procurement
A source at the Tablets-for-students procurement committee said that the tablets of only six applicants (of eight) hoping to tender for the Bt4.6bn 1.63m-unit procurement passed the “drop test”. SIM’s tablet (for technical or legal reasons, the official applicant was actually SAMART) was one of two that failed the test, so the firm didn’t qualify to participate in the e-auction, which is scheduled for today (JTS’s tablet also failed the drop test).
FY13 profit forecast maintained even without tablet procurement
The firm had earlier guided that it thought it had only a 50% chance of winning a slice of the tablet procurement, so it wasn’t a huge surprise to learn that it had failed to qualify for the e-auction. We had previously factored the incremental value from the Tablets-for-students project into our 2H13 forecast—Bt952m in revenue, GM of 15%, NM of 5.5%, Bt52m in 2H13 net profit, a Bt0.012/share addition to EPS and a Bt0.37 (8%) increase to our YE13 target price.
Despite the fact that SIM failed to win a slice of the procurement, we maintain our FY13 net profit forecast unchanged at Bt653m, as we regard our numbers as very conservative. Our 1H13 net profit projection is Bt377m, equal to 58% of our full-year number. We expect strong smartphone sales growth in 2H13 with the commencement of commercial 3G-2.1GHz services by the three mobile operators (in late 2Q13) and the launches of about 20 new smart phone models.
Telcos’ house brand handset launches to have only slight impact
In May, TRUE launched a house-branded handset, “True Beyond”. On June 7, DTAC unveiled three smart phones branded “Dtac Trinet Phone” with prices ranging Bt1,290-4,590. On June 19, ADVANC announced that it will introduce a range of house-branded smart phones (below Bt5,000) and feature phones (below Bt2,000).
We think the negative impact on SIM will be only marginal because it targets a higher income demographic than the telcos’ house-branded handsets. It caters to mid-range income demographics; as such its smart phone prices range Bt8,000-12,000, far above the price points of the telcos’ house brands. Moreover, we believe that Thailand’s smart phone market is currently under-penetrated at only 25%.