Samart I-Mobile

Samart I-Mobile Plc (SIM)

Investment thesis
Following the analyst meeting, we expect SIM’s smart phone sales to
sustain robust growth in 2H14, led by launches new digital TV-enabled
handset models in tandem with expanding national digital TV coverage.
Moreover, its market entry into Myanmar and black ink for the MVNO
will drive FY15 earnings. Our BUY rating stands, premised on strong
FY14 profit growth, led by smart phone sales and MVNO break-even
(expected in 4Q14).
Expect flattish YoY 2Q14 core earnings
We estimate a Bt293m net profit for 2Q14, up by 14% YoY and 49%
QoQ. Stripping out an Bt8m FX gain in 2Q14, core profit would be
Bt285m, flattish YoY and up 46% QoQ. The flattish YoY core profit is
attributable to heavier tax and interest expenses, which probably offset
the effect of a fatter gross profit. The QoQ jump is due to GM
expansion to a normalized level following price-cutting to clear
inventory in 1Q14. We estimate mean GM at 23%, against 27.6% in
2Q13 and 18.8% in 1Q14.
Greater smart phone sales volume and a higher mean sales price are
modeled for 2Q14. SIM sold 1.29m handsets—855k smart phones (up
by 123% YoY and 17% QoQ) and 442k feature phones (down 30%
YoY but up 27% QoQ). We estimate the mean sales price for the
quarter at Bt2,698, up 10% YoY (but down 8% QoQ), led by a bigger
proportion of smart phones in the sales mix (66% of total handset sales
volume). The firm launched 17 new handset models in 2Q14—10 smart
phones, 5 digital TV (DTV)-enabled smart phones and two feature
phones. It sold 210k units of DTV-enabled handsets during the quarter.
We estimate the MVNO’s net loss of Bt15m, shallower by 25% QoQ
with MVNO subscribers of 593k at end-June, up 17% QoQ.
Greater digital TV-enabled handset sales in 2H14
Industry-wide smart phone unit sales were 4.42m, up 32% YoY, during
5M14. SIM’s smart phone unit sales were 1.59m in 1H14, up by 107%
YoY. We expect the smart phone market to grow by 25% in FY14 and
by a 20% CAGR, FY14-16. The smart phone penetration rate is now
30%. We expect it to rise to 40% by YE14 and to 50% by YE15,
underpinned by greater sales volume of smart phones priced below
Bt5,000, starting 2H14.
SIM’s smart phone sales will jump in 2H14, we forecast, led by the
launches of 10 new models and heavier sales of digital TV-enabled
handsets in tandem with digital TV coverage expansion (the first phase
covered 11 provinces by June 2014; phase II will cover 28 provinces by
June 2015). We forecast sales of 900k units of smart phones in 3Q14,
up by 121% YoY and 5% QoQ, and a Bt2,900 mean sales price, up by
1% YoY and 8% QoQ. GM should be stable at 23%.