Samart I-Mobile

Samart I-Mobile Plc (SIM) 

Core profit as expected 

SIM posted a Bt71m net profit for 4Q14, down 53% both YoY and QoQ. Stripping out a Bt3m FX gain and Bt5m in net extra expenses in the quarter, core earnings would be Bt73m, down 61% YoY and 46% QoQ. Net profit was 5% short of our model, thanks to the above extra expenses. However, core profit was in line with our estimate. Sales were 8% short of our assumption but gross profit exceeded our model by 7%. GM was 20.6%—higher than our 17.7% assumption—down from 24.1% in 4Q13 and 22.6 % in 3Q14.

Result highlights 

The core profit deterioration was attributable to weak consumption spending, a squeezed GM in a very competitive handset sales environment, higher interest and tax expenses and lower sales support income. Sales rose 20% YoY and 13% QoQ, underpinned by the 500k one-time big-lot sale to DTAC in the quarter. The firm sold 1.33m handset units in 4Q14, up 32% YoY and 33% QoQ. Of total units sold during the quarter, smartphones comprised 1.23m units, up 119% YoY and 72% QoQ. The mean blended sales price was Bt2,340/unit, down 11% YoY and 14% QoQ, squeezed by the lower-priced big-lot sale.

Handset sales totaled Bt2.7bn, up 26% YoY and 15% QoQ. Content revenue was Bt164m, down 31% YoY and 8% QoQ. Revenue from the MVNO business was Bt66m, down 6% YoY and 20% QoQ. Gross profit from the handset business was Bt532m, down 12% YoY but up 14% QoQ. The GP of the content unit was Bt44m, up 13% YoY and flattish QoQ. The GP of the MVNO unit was Bt23m, up 77% YoY but down 34% QoQ. Handset GM fell to 19.2% from 27.6% in 4Q13 and 19.4% in 3Q14. MVNO subscribership was 614k at YE14, up 1% QoQ. 

Outlook

Our preliminary forecast for 1Q15 core profit is Bt120m, down 38% YoY (due to the sustained weak consumption climate in 1Q15) but up 64% QoQ (led by improved margin due to the absence of lower-margin big-lot sales such as that of 4Q14 and the seasonally lower SG&A). Our total handset sales assumption for the quarter is 0.9m units, down 16% YoY and 32% QoQ (assuming no big-lot sales). We assume the mean sales price of Bt2,500/unit in 1Q15, down 15% YoY (but up 10% QoQ in the absence of big-lot sales). We assume the blended GM should be 22% against 18.8% in 1Q14 and 20.6% in 4Q14. 

What’s changed? 

Our FY15 core earnings projection stands unchanged. 

Recommendation

We maintain a HOLD rating in anticipation of fiercer competition in the handset industry, which will lead to further squeezing of margins.