Samart I-Mobile

Samart I-Mobile Plc (SIM)

Investment thesis
Following the 2Q13 preview meeting, we reaffirm our bullish view on the outlook for earnings in 2Q13 and 2H13, led by greater smart phone sales, a recovery in content revenue and a shallower MVNO net loss. Our BUY rating stands with a YE13 target price is Bt4.50 (an implied PER of 20.8x). 
Robust 2Q13 earnings expected
We estimate a Bt250m net profit for 2Q13, up by 994% YoY and 41% QoQ. Stripping out a Bt25m FX loss for the quarter (and extra items in 1Q13), core profit would be Bt275m, up by 1,103% YoY and 66% QoQ. The assumed jump was led by smart phone sale volume and mean sales price, while the net loss at the MVNO should have diminished. We estimate sales of 1.018m handsets in 2Q13—1.015m units branded i-mobile and 2,161 units of other brands. Of the i-mobile handsets sold, we expect that 384k units were smart phones (against 381k units in 1Q13 and 22k units in 2Q12). Unit sales of feature phones would have dropped by 41% YoY but risen by 23% QoQ. 
The blended sales price is estimated at Bt2,446, up 87% YoY (led by greater proportion of smart phones in the sales mix) but down 4% QoQ (due to a higher QoQ proportion of feature phones). The average i-mobile sales price is assumed at Bt2,413, up 96% YoY but down 4% QoQ. Blended GM is modeled at 27% in 2Q13, up from 18.5% in 2Q12 and 25.1% in 1Q13, led by fatter GM for smart and feature phones. The GM of feature phones should have exceeded 20% in 2Q13, up from 10-15% in 1Q13, while the GM of smart phones was more than 30%.
There were 200k active MVNO subs at end-June, against 89k in Jan 2013. The average total top-up of all MVNO subscribers rose to Bt401,173/day in June 2013 from Bt178,115/day in Jan 2013.
SIM targets YE14 MVNO subs of 2m
Management targets cumulative MVNO subs of 600-700k at YE13 and 2m at YE14. ARPU/month is now Bt160-170 and is expected to rise to Bt200 in FY14. The MVNO’s net loss has eased to Bt6m/month in 2Q13 (from Bt10m/month in 1Q13). SIM targets break-even for the MVNO in 4Q13 at 500k cumulative subs and a Bt200m net profit in FY14. We conservatively assume break-even at 700k subs and ARPU of Bt180 in FY14.
Robust growth momentum through 3Q13 
We forecast a 3Q13 net profit of Bt270m, up by 665% YoY and 8% QoQ, led by the greater smart phone sales volume (7-8 new models will launch), a content business recovery with the start of the new EPL soccer season and a shallower MVNO loss. Management has revised up its FY13 handset sales volume target from 3.3m to 4m.