Samart Corporation

Samart Corporation Plc (SAMART)

 

We upgrade SAMART to Outperform from Neutral with an unchanged target price of Bt34.50. The 7% decline in the share price over the past month has boosted the potential return to 15%. While 1Q15E results are likely to be weak for the group, we expect to see an improving trend after the first quarter on the back of higher new projects signed at SAMTEL and more handset sales at SIM. However, we are unlikely to factor the power plant in Cambodia into SAMART’s valuation in the near term. We expect SAMART to report a weak profit in 1Q15E on 13 May, due to weak profit contributions from all businesses including SAMTEL and SIM. The current share price is trading at a PER of 17.7x in 2015E and 14.8x in 2016E, which is close to its two-year mean of 15.8x. 

 

Investment highlights 

 

- SAMTEL’s revenues and profit poised for uptrend after 1Q15. Although SAMTEL has signed only Bt500mn of new projects in 1Q15, there is around Bt5- 6bn of awarded projects waiting for their contracts to be signed after 1Q15. We believe that our target for new projects signed of Bt11bn in 2015 should be achievable. The higher investment budget as well as the acceleration of spending by the government should support revenues and a profit uptrend for SAMTEL in 2016. We expect SAMTEL’s net profit in 1Q15E to set a bottom for 2015. 

 

- SIM should sell more handsets after 1Q15. We still expect SIM should be able to achieve our target of 4.8mn handsets sold in 2015. SIM sold around 900,000 handsets in 1Q15. Co-operation with mobile operators to bundle airtime packages with “I Mobile handsets” will allow SIM to be more competitive with other brandname handsets and lower the pressure on its handset gross margin. The clarity on the 4G auction timeframe should also allow SIM to benefit from 4G migration. 

 

- Power business: still in negotiations with EGAT. SAMART has already presented the details of the power plant project in Cambodia to EGAT, which has yet to finalize the tariff. We understand that purchasing electricity from neighboring countries will be done on a government-to-government basis. The issue will be considered by EGAT’s specifics committee which will submit the result to the Energy Regulatory Commission before the PPA is signed. This process does not require a bidding process as is the case IPPs and SPPs. There is no official timeframe for this consideration process. 

 

- 1Q15E net profit trend. We expect SAMART to report a 1Q15 net profit of Bt245mn, down 23% QoQ and 39% YoY. The decline both QoQ and YoY should be mainly be the result of lower revenues. Total revenues were estimated at Bt4.7bn, down 17% QoQ and 25% YoY. We expect all key businesses to show declining revenues both QoQ and YoY. Net profit in 1Q15E should account for 14% of our whole-year forecast. 

 

Valuation 

 

- We valued SAMART using a sum-of-the-parts approach. Our fair value of Bt34.5 per share reflects the value of existing businesses including SAMTEL, SIM, OTO, air traffic control services, KPP and others businesses. The valuation for subsidiaries is based on PER and DCF methodologies. We have not yet factored the coal power and waste-power plants into our valuations. Our fair value reflects a PER of 20.3x in 2015E and 17.0x in 2016E, which implies a trading range between mean and +1SD.