Samart Telcoms

Samart Telcoms Plc (SAMTEL)

Investment thesis
SAMTEL is going to miss our earlier 2Q13 earnings expectation because of slow progress with the TOT 3G Phase 1 project, but 3Q13 numbers should be strong. We remain positive on the 2H13-FY14 earnings outlook, which is underpinned by two big-ticket projects. Our BUY rating stands, premised on strong earnings growth and a cheap valuation—an FY13 PER of 12.2x against a long-term mean of 15.5x.
TOT’s 3G Phase 1 installation to complete in August
Grp Capt Anudith Nakornthap, the ICT minister, said that TOT must complete the installation of all 5,320 sites of its 3G Phase 1 project and commence 3G services in August 2013. But SAMTEL has so far installed only 4,800 of the sites. With regard to TOT’s 3G Phase 2 project, the state telco hasn’t yet completed its business plan (and hasn’t even decided whether or not it will recruit an investment partner). We anticipate a comprehensive plan by the end of the year. TOT aims for a 10% market share from its 1900MHz mobile business after the completion of the 3G Phase 2 project.
Diminished expectations for 2Q13 earnings
Based on what we were told in a conference call with SAMTEL IR, the slow 3G Phase 1 site installation will squeeze 2Q13 earnings, but the lost revenue and profit will be made up in 3Q13. We maintain our FY13 bottom-line projection unchanged for now, based on company guidance of no impact on the FY13 revenue profile.
Our 2Q13 earnings estimate is now downsized to Bt160m (from Bt300m), a dive of 30% YoY and 39% QoQ. We now assume 3G Phase 1 revenue of Bt500-600m in 2Q13 for the 400 sites installed during that quarter and another Bt1.1-1.2bn for the remaining 700 sites in 3Q13.   
Tender could open for 3G Phase 2 in 1H14 (at earliest)
Assuming that TOT has a 3G Phase 2 business plan in place by YE13, it might take six months or so for the NESDB to scrutinize the plan and the Cabinet to approve the budget. The project could open to tender at some stage in 1H14. We would then assume first revenue recognition in 4Q14 or FY15. Due to the current uncertainty over the timeframe, we have not yet factored the contract into our model. Our preliminary estimate suggests that it could add Bt6/share to our SAMTEL target price, assuming Bt16bn project value (based on SAMTEL having 65% of the deal).
The company, however, still has the contract in its YE13 backlog forecast (which it bullishly values at Bt20bn of a total YE13 backlog of Bt29bn). It will probably need to re-categorize TOT 3G phase 2 to its YE14 backlog target.