Samart I-Mobile

Samart I-Mobile Plc (SIM) 

 

Investment thesis

We cut our FY15-16 net profit forecasts to reflect the weaker-than-assumed 1H15 earnings expectations, heightened handset industry competition and persistent weak consumption climate to-date. Although the firm has tried to boost handset sales through new channels—such as e-commerce and direct sales to specific firms—we believe that it is only a short-term positive amid more intense handset competition from mobile operators. Its earnings look set to bottom out in 2Q15, but we are skeptical over the scale and sustainability of its recovery in the medium term. Our HOLD rating stands, led by the unattractive handset industry outlook with more intense price-led competition. 

Insights into 2Q15—an earnings plunge

We estimate a Bt88m net profit for 2Q15, down 70% YoY and 13% QoQ. Stripping out extra items in 2Q15—a Bt8m FX gain and a Bt5m gain from the sale of marketable securities—core profit would be Bt75m, down 74% YoY and 28% QoQ. The YoY deterioration is due to sustained weak consumption, the GM squeeze and the greater competition led by mobile operators’ cheaper-priced 3G feature phone and low-cost smart phone (such as AIS LAVA models). This is despite its efforts to boost sale volumes through joining with mobile operators to bundle their SIM cards into I-Mobile handsets starting 2Q15. Seven models—six of which are smart phone—were launched in 2Q15. 

We assume that the blended GM will drop to 21% in 2Q15, down from 22.9% in 2Q14 but flattish QoQ. The firm sold 835k handset units in 2Q15, down 36% YoY and 7% QoQ. Of total units sold in 2Q15, 638k were smartphones, down 25% YoY and 17% QoQ. We assume its 2Q15 mean sales price to be Bt2,675, down 1% YoY and flattish QoQ. We estimate Bt254m in 2Q15 content revenue, up 31% YoY and 26% QoQ, due to the business model change from content to ad media. 

FY15-16 earnings cuts and target price downgrade

We cut our net profit forecasts by 29% for FY15 (to Bt480m) to reflect a diminished 1H15 earnings expectation (due to lower-than-assumed handset sales volume) and 23% for FY16 (to Bt561m) to reflect greater handset industry competition. We trimmed our FY15 handset sales volume forecast from 4.6m to 3.6m, which is more conservative than the firm’s FY15 target of 4m. We reduce our target price 33% (to Bt3).

New handset channels to boost sales in 2H15

The firm has pushed more handset sale volumes through new channels in 2H15—such as e-commerce, direct sales and special events—and targeted additional sales of 200k units from the direct sales mentioned. It will launch seven new handset models in 3Q15 and expects to conclude the big-lot sales in Myanmar in 2H15. Overall, we expect its handset sales volume to improve QoQ in 3Q15, led by direct sales to corporate and state-agency units. We preliminarily estimate a Bt120m net profit for 3Q15, down 21% YoY but up 37% QoQ.