Samart Telcoms

Samart Telcoms (SAMTEL)
Investment thesis
Following the preview conference call, we anticipate strong 3Q13 core earnings, underpinned by recurring income from existing projects and new revenues from contracts signed during the quarter. Our BUY rating stands, premised on an expected YE13 project backlog of Bt11bn (including the APPS contract) and a cheap FY14 PER of 9.3x.
Solid 3Q13 core profit growth expected
We estimate a Bt216m net profit for 3Q13, down 9% YoY but up 23% QoQ. Excluding a Bt20m FX loss for the quarter, core earnings would be Bt236m, up by 44% YoY and 16% QoQ. The assumed YoY core profit jump is attributable to greater revenue and better SG&A control. The QoQ rise is due to seasonality (the govt’s fiscal-year budget ends in Sept). We estimate Bt2.5bn in revenue for 3Q13 (up by 37% YoY and 10% QoQ) and GM of 19.2% (flattish QoQ). SG&A is assumed to be flattish YoY and QoQ.
The estimated Bt2.5bn top-line comprises Bt1.9bn from projects signed before 3Q13 and Bt640m from new contracts signed during the quarter. The seven key projects signed before 3Q13 that would have underpinned revenue were TOT’s 3G Phase 1, the PEA’s ERP, TOT’s SchoolNet Extension, AOT’s CUTE Outsource, the PEA’s AMR Phase 2, the Ministry of Justice’s IT System and TOT’s Co-Site Rental.
SAMTEL signed new contracts worth Bt1.5bn in 3Q13—AOT’s AIMS Network Migration (Bt425m in total; Bt80m in 3Q13), the Ministry of the Interior’s Network Satellite (Bt187m in total; Bt49m in 3Q13), the PEA’s DCR System (Bt106m in 3Q13) and other small deals (Bt800m in total; Bt400m in 3Q13).   
Higher TOT 3G Phase 1 income expected in 4Q13
The firm recognized 3G Phase 1 revenue of Bt500m in 3Q13 and installed a further 183 cell sites during the quarter (about 5,000 in total by end-Sept). It expects to complete all 5,270 sites by YE13 and recognize the remaining Bt768m in revenue in 4Q13. With regard to AOT’s Advanced Passenger Processing Service (APPS) project, the AOT board approved the Terms of Reference for the tender in August. The tender is expected to open and the contract be signed during 4Q13.
YE13 project backlog estimate of Bt11bn
We estimate Bt3bn in revenue for 4Q13, up by 47% YoY and 19% QoQ, led by income from existing projects and Bt6bn in new contracts expected to be signed in 4Q13 (inclusive of the APPS). We model for a Bt270m net profit for the quarter, up by 119% YoY and 25% QoQ. The firm signed a Bt1.2bn E-title Deeds project with the Department of Land on Sept 27 (Bt330m in 4Q13). We estimate that the project backlog will rise to Bt11bn (inclusive of the APPS) or Bt8bn (exclusive of APPS) at YE13. SAMTEL’s backlog was Bt7bn at end-Sept.