Samart I-Mobile

Samart I-Mobile Plc (SIM)
The right product at the right time. SIM has become prominent in the smartphone
market with its own brand, which now contributes 98% of its mobile phone sales.
Producing its own brand has made it possible to be immediately responsive to market
wishes - devices with a bigger screen, better CPU, more advanced camera and longer
battery life, for example - and at the same time keep prices reasonable. It introduced
seven new models in 2Q13 (six smartphones and one feature phone model). In 1H13 it
sold ~1.9mn handsets, with smartphones contributing ~38% of total units sold.
Impressive earnings. Sales surged 64% YoY in 1H13 to Bt5.0bn, with mobile phone
revenue leaping 80% YoY to Bt4.5bn. These gave a net profit of Bt433mn +963% YoY.
We estimate 2013 earnings of Bt901mn or Bt0.21 per share, +443% YoY. SIM has three
businesses and in 2013, smartphone sales will lead at 90% contribution, followed by 9%
for content and 1% for mobile virtual network operator (MVNO) on TOT’s 3G network.
Proportionate gross profit will be 89% from smartphones, 11% from content and zero
from MVNO. 3Q13 net profit is estimated at Bt234mn, down 8.6% QoQ as third quarter
is generally the low season for purchases.
Content and MVNO. Although content growth is slower than mobile phones this
year, it is steady and long term, with a high gross margin of almost 30%. The MVNO
business is quite new and without a record to go by, we will wait to see SIM’s
performance in the MNVO arena over time. We conservatively forecast no profit in
2013F. SIM has signed up 200,000 TOT subscribers YTD, +225%; breakeven is estimated
at 400,000 subscribers and its target is 1.15mn subscribers.
Initiate as Buy with TP of Bt4.80. SIM suffered through a steady erosion in revenue
and net profit from 2008 until it finally saw the light at the end of the tunnel in 4Q12,
after which net profit has surged QoQ: +145% in 4Q12,+105% in 1Q13 and +45% in 2Q13.
We believe net profit of ~Bt250mn per quarter in 2H13 and through 2014 is possible as
SIM continues to enjoy overwhelming acceptance of its brand, shoving sales and profit
up sky high. Selling its own brand means margin is good, at 23-26%, and the time is
certainly right as subscribers move to 3G from 2G. In 2014, we expect to see rapid
progress in the MVNO business to help make up for the natural subsidence in mobile
phone sales once users are all on 3G, expected about 2015. In 2013 and 2014 we still
expect strong net profit QoQ as this trend heads up. We value SIM by comparing it
with JMART and use a 2014 PER of 20x. From this we derive a target price of Bt4.80 and
initiate coverage as a BUY.