Samart Corporation

Samart Corporation Plc (SAMART)

What’s new?
On July 2, 2014, SAMART signed a Share Purchase Agreement with Axiata Group Berhad (“AXIATA”) to buy 1,053m shares in Samart I-Mobile Plc (SIM) or a 23.93% stake at Bt2.73 per share amounting to a total of Bt2.87bn. SAMART will fund the purchase entirely by loan. The transaction will be settled through a big-lot sale on the SET within 30 days of the recent signing. After the purchase, SAMART will hold a 74.11% stake in SIM, up from 50.18%. Before the deal, SAMART held a 57.36% stake in SIM but sold 7.18% of outstanding shares in the market (and hence, its stake in SIM then declined to 50.18%).
Modest impact to SAMART’s FY14-15 bottom line
There will be a net positive impact to its bottom line as a result of the additional holding in SIM. As we previously assumed a 58.74% stake in SIM, we only need to add 15.37% in our assumptions. Two implications are: 1) an increased stake in SIM will reduce minority interest; and 2) the additional bank loan will incur higher interest expense. We assume that SAMART will incur Bt2.8bn new debt with an average cost of debt of 4%.
We estimate that its 15.37% stake increase in SIM will boost net profit by Bt180m for FY15, which outweighs the incremental interest expense of Bt115m per annum. Netting out both, there’s a Bt64m annualized net positive impact to the bottom line or about 3.3% of our FY15 net profit forecast. For FY14 impact, we estimate a net gain of Bt19m over the five remaining months or 1.1% of FY14 net profit forecast. Our sum-of-its-parts valuation was lifted by 3% to Bt31.40. 
Digital set-top box distribution expected in Sept 2014
The National Council for Peace and Order (NCPO) declared in mid-June 2014 that it will investigate the transparency of NBTC’s digital set-top box distribution project and also questioned the value of the Bt1,000 coupon subsidy in exchange for one free digital set-top box. Accordingly, the NBTC will hold public hearings in July to discuss the number of households that will receive a free coupon; the value of this coupon; the estimated total value of this project; and if these coupons should be used to buy other items including a TV Set or satellite cable TV set-top boxes. The NBTC announced that the minimum coupon value should be Bt690 and expected that the digital set-top boxes will be distributed in September. 
We had assumed that SAMART will sell 8m units out of a total of 40m TV set-top boxes within three years and conservatively modeled for only 1m unit sales in FY14. We had already factored in a net margin of 10% and a mean sales price of Bt1,000/set resulting in 4%, 6% and 5% increases in FY14 top-line, bottom-line and target price, respectively. However, if the set-top box mean price were to drop to Bt690/set, we would downgrade FY14 top-line and bottom-line by 1-2% and target price by 1.5%, which is marginal.