Samart I-Mobile

Samart I-Mobile Plc

3Q13F: Expect net profit Bt212mn, +500% YoY but -17% QoQ. Net profit will continue strong at Bt212mn, with revenues in 3Q13 expected to reach Bt2.5bn, +58% YoY but -5% QoQ, as third quarter is generally the low season for shopping, plus there was a slight hitch in the introduction of a new i-Mobile smartphone. Unit sales are estimated at ~900,000 in 3Q13, just under the 1mn units in 2Q13, with the year’s target at 4mn units. However we expect earnings to come back strongly in 4Q13, the high season for shopping. Gross margin is estimated at ~26.8% with net margin of ~8.7%. We also expect it to book a FX loss of Bt5mn.
Impressive earnings in 2013-2015. Pumped up by smartphone sales, we estimate 2013 profit at Bt901mn, an EPS of Bt0.21, +443% YoY, increasing to Bt1.06bn in 2014, +17% YoY, then to Bt1.22bn, 16% YoY in 2015. Of its three businesses, smartphone sales dominate at 90% contribution, with 9% for content and 1% from acting as a mobile virtual network operator (MVNO) on TOT’s 3G network. Proportionately, 89% of gross profit comes from smartphones, 11% from content and zero from MVNO.
Content and MVNO. Although content growth is slower than mobile phones, 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 conservatively forecast no profit in 2013F. SIM has signed up 200,000 TOT subscribers YTD, +225%; we have raised our breakeven level to 600,000 subscribers from 400,000 as we lower our sights for ARPU to Bt100 from the previous forecast of Bt140.
TOT to revise MVNO contract. TOT initially planned to sign a new contract last month with SIM, the handset flagship and 3G arm of SAMART, to provide 3G mobile service under a mobile virtual network operator (MVNO) model. However, the latest news is that TOT may end the 3G partnership contract with SIM after a state financial audit agency cast doubts on the benefits to TOT. With the bulk of SIM’s revenue and earnings from handsets and content, there would be no material impact on forecast. Having said that, since TOT urgently needs new revenue to compensate for the end of concession revenue by Dec 2013, we expect the MVNO contract between TOT and SIM to be ratified in the end.
Recommend Buy with TP of Bt4.80. SIM continues to enjoy overwhelming acceptance of its brand, with sales and profit soaring, with 4Q13 – the shopping season - expected to be this year’s best. Margin is high thanks to sales of its own brand, on which it gets a ~25% margin compared to the 13-15% from international brands. As subscribers flock to 3G from 2G, we look for strong sales and profit through 2014. 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 rate it a BUY.