Jasmine International

Jasmine International Plc (JAS)

 

- JASIF boosts 1Q15 profit significantly, but weaker than expected 

 

JAS's 1Q15 net profit made a record high of B12.8bn owing to B12bn extraordinary profit from sales of assets to JASIF (40% lower than expected). Additional profit was partially negated as JAS set a provision for the cost of asset rental in the future (see page 2). Excluding extraordinary items, JAS's 1Q15 normalized profit was B783m, falling 18.3%qoq and 8.3%yoy. The number of internet subscribers increased from 4Q14 by 80,000 (up 4.8%qoq, higher than usual increase of 60,000 subscribers/quarter), boosting service revenue by 2.8%qoq. However, this was negated by cost of asset rental from JASIF, thus slashing gross profit margin from 62.7% in 4Q14 to 52.1% in 1Q15. This is compensated by non-operating income, e.g. profit sharing from JASIF (33.33%), income from asset management in JASIF, and interest income that increased from 4Q14 by B230m. 

 

- Normalized profit to hit bottom in 2Q15, to rise slightly in 2H15 

 

Although 1Q15 normalized profit made up 30.2% of the full-year forecast, 2Q15 normalized profit is projected to drop from 1Q15 and make a year's low since JAS would fully recognize cost of asset rental from JASIF for the first quarter (starting from February 10), while a growth in the number of subscribers would slow down after ADVANC officially enters the internet competition. Then, JAS's normalized profit is expected to rebound slightly in 2H15 solely because of growing number of subscribers. We maintain our FY2015 normalized profit forecast at B2.7bn, falling 24.6%yoy. Since JAS's extraordinary profit was lower than expected, we revise down our earnings forecast, projecting JAS's net profit to skyrocket 440%yoy to B14.3bn in 2015, but then shrink 72%yoy in 2016. 

 

- 4G investment has downside. SELL 

 

Investors are probably speculating on JAS to enjoy free JAS-W3 with the theoretical value of B1.29 before the XW date of June 25 (not included in the fair value). Although the fair value implies 14.9% upside, if JAS wins the 4G spectrum bid in late 2015, its new 4G network business would face loss for at least two or three years, depressing JAS's earnings and fair value. We reiterate SELL.