Samart Corporation

Samart Corporation Plc (SAMART)

Investment thesis
Following the preview conference call, we expect SAMART to post robust core earnings growth for 3Q13, led by jumps in SIM’s and SAMTEL’s respective core profits. Our BUY rating stands, premised on: 1) solid 2H13-14 earnings and 2) upside from the sale of digital set-top boxes, SIM winning a digital news channel license and Samart U-Trans’ winning the tender for a Bt1.6bn project.  
Upside from the sale of digital set-top boxes—Bt2.4-3.6/share
We believe that Samart Engineering (SE), a wholly-owned subsidiary of SAMART, is likely to be designated one of eight digital set-top boxes sellers by the NBTC in Oct or Nov. SE has already acquired product and sales licenses to do the business. It targets selling 200k units in 4Q13, 2m in FY14 and 2m in FY15 (about a 20% market share). We have adopted more conservative assumptions: 1) 1m unit sales in FY14, 1.5m in FY15, 1.5m in FY16 and 0.4m in FY17, 2) NM of 10-15% and 3) an average sale price of Bt1,200/unit. 
Assuming NM of 10%, our net profit forecasts would be boosted by 8% for FY14 and by 11% for FY15 and our YE14 target price by 7% (Bt2.4/share). NM of 15% would boost our net profit forecasts by 12% for FY14 and by 16% for FY15 and our YE14 target price by 11% (Bt3.6/share).
Upside from SIM winning a digital TV license—Bt1.2/share
Samart Multimedia Co Ltd (a wholly-owned subsidiary of SIM) and Siam Sport Syndicate Plc have a 50:50 JV called I-Sport Media Co Ltd that plans to bid for a commercial digital news channel license at the NBTC’s upcoming auction. Assuming a project IRR of 12% for a digital news license—an Bt18k/min mean ad rate in the first year, rising to Bt48k/min in the fifth year, and a weighted mean utilization rate of 5% in the first year, rising to 28% in the fifth year—we estimate Bt0.9/share of equity value for the JV, or Bt0.45/share for SIM. Based on SAMART’s 60.4% stake in SIM, SAMART’s sum-of-the-parts valuation would rise by Bt1.2/share (up 4%).
Insights into 3Q13—robust core earnings growth
We estimate a Bt357m 3Q13 net profit, up 26% YoY and flattish QoQ. Excluding a Bt13m FX loss for the quarter, core profit would be Bt370m, up 109% YoY but down 11% QoQ. The expected YoY jump is due to core profit jumps for SIM and SAMTEL. The QoQ decline is because of a seasonal fall in SIM’s bottom-line. SIM’s assumed YoY core earnings jump was led by significant rises in smart phone sales volume and mean sales price and a fatter GM. SAMTEL’s YoY expected core earnings rise was led by greater revenue and better SG&A control.