Samart Corporation

Samart Corporation Plc (SAMART) 

Core profit exceeded estimate   

SAMART posted a Bt242m net profit for 3Q15, down 32% YoY and 12% QoQ. Excluding extra items in 3Q15—a Bt5m FX loss and a Bt7m loss from asset sales—core profit was Bt254m, down 14% YoY and 13% QoQ. SAMART’s net and core profits exceeded our models by 10% and 9%, respectively, led by lower-than-assumed tax expenses of unlisted firms. SIM’s core earnings were 11% short of estimates, owing to greater tax expense than assumed. Core profits of SAMTEL and OTO were in line with our estimates.

Result highlights

The YoY core profit drop was led by core profit drops at SIM, OTO and its unlisted firms—Kampot Power Plant (KPP), Samart Engineering (SE), Vision and Security System (VSS) and Samart U-Trans (SUT)—which outweighed the core profit rises at SAMTEL and one unlisted firm, Cambodian Air Traffic Services (CATS). SIM was the major drag on SAMART’s profit. SAMTEL’s 3Q15 core profit rose 3% YoY and 16% QoQ, on lower interest expense and a reversal into the tax credit and revenue rises (see details in our SAMTEL report).

SIM’s 3Q15 core profit dived 83% YoY and 69% QoQ, led by sustained weak consumption and competition from mobile operators (details in our SIM report). OTO’s 3Q15 net profit dropped 25% YoY and 17% QoQ, on the recognition of a low-margin project and the loss from the Cambodian operation. All unlisted subsidiaries posted YoY declines in their 3Q15 earnings except CATS, which posted a Bt55m 3Q15 net profit, up 15% YoY (but down 10% QoQ), driven by growth in the number of flights. SE posted a Bt10m 3Q15 net loss, 100% YoY and 72% QoQ deeper. SUT posted a Bt7m net profit, down 72% YoY and 83% QoQ, due to lower revenue.

Outlook

We estimate a Bt270m core profit for 4Q15, down 19% YoY but up 6% QoQ, led by SIM and SAMTEL. The latter would post a Bt180m core profit for 4Q15, down 10% YoY but up 25% QoQ, assuming the Royal Thai Police (RTP)’s Bt3.4bn Digital APCO project is signed in 4Q15. SIM will post a Bt50m core profit for 4Q15, down 32% YoY (led by sustained weak consumption) but up 114% QoQ (due to high season and some mild impact from government stimulus packages).

What’s changed?

We have maintained our FY15 net profit forecast unchanged.

Recommendation

Our BUY rating stands, based on FY16 earnings recovery, underpinned by SAMTEL and SIM. With the RTP’s declaration that SAMTEL is innocent from the allegation of tower and radio equipment installation, we believe that its share price will regain stronger momentum sooner.