Samart Corporation

Samart Corporation Plc (SAMART)

Investment thesis
SAMART’s share price has dived 30% since June on heavy foreign selling (the foreign holding in the firm was 13.7% as of July 9 against 15.6% on June 3). It is now unmistakably cheap—an FY13 PER of 11.8x and a PEG ratio of 0.3x—with unchanged strong fundamentals (hefty earnings growth, led by SIM and a big backlog for SAMTEL). In contrast, the ICT sector means are 18.9x and 2.6x.We don’t expect the share price to stay this low for very long. BUY!
Positive #1: Robust earnings growth profile, 2Q-4Q13
We expect a Bt355m net profit for 2Q13, up by 53% YoY (flattish QoQ) and 2H13 earnings of Bt772m, up by 47% YoY. A modest FY13 profit downgrade for SAMTEL looks likely, due to some project delays, but that will be offset by SIM’s FY13 smart phone sales and bottom-line (we have expanded expectations for the firm).
With regard to SIM, we estimate a Bt250m profit for 2Q13, up by 993% YoY and 41% QoQ. That hefty growth will be sustained through the year, we believe—our 2H13 earnings forecast is Bt520m, up by 327% YoY. Smart phone purchases will surge in 2H13 in tandem with accelerated migration to 3G-on-2.1GHz networks. As SIM is a low-cost vendor, it shouldn’t be affected by the slowdown in consumption—subscribers will migrate to 3G networks in part because their airtime rates are cheaper than for 2G networks; low income demographics will buy smart phones in order to get wireless internet access.
Positive #2: Solid project backlog 
SAMTEL’s current project backlog is Bt9bn. Note that state agency ICT contracts have proved far more resilient to the vagaries of politics than other types of govt contracts (it’s extremely rare for state ICT contracts to be nullified and re-opened to tender). We assume a maximum of 10% downside risk to SAMTEL’s FY13 earnings profile, assuming delays to some project tenders. Also, we expect the AOT Advanced Passenger Processing Services (APPS) and TOT 3G Phase 2 projects to open for tender in 2H13-1H14.   
Positive #3: Unmistakably cheap! Scope for profit upside
The near-term catalysts will be Samart Engineering getting a digital network provider license and the possible sale of digital set-top boxes. The expected tenders for APPS in 2H13 and 3G Phase 2 in 1H14 would mean scope of upside to SAMTEL’s revenue and earnings profiles. Furthermore, the planned SET listings of One-to-One Contacts in 2H13 and Samart U-Trans in FY14 would unlock value for SAMART.