Samart Telcoms

Investment thesis

The signing of the Digital Trunked Radio System (DTRS) project with CAT is a positive development for SAMTEL and we expect the firm to ink another two big-ticket projects—AOT’s Advanced Passenger Processing Services (APPS) and TOT’s 3G Phase 2—in 1H13, boosting its YE13 project backlog and FY13-15 earnings. We overlook weaker-than-modeled 4Q12 earnings (the delay to revenue recognition from TOT’s 3G Phase 1 project from 4Q12 to 1Q13) and focus on the FY13 bottom-line. Our BUY rating stands, premised on upside from two big projects in FY13 and a cheap valuation—an FY13 PER of 11.8x.

SAMTEL clinched the DTRS project with CAT in Dec 

SAMTEL signed a contract with CAT Telecom (CAT) on Dec 21, 2012 to install a Digital Trunked Radio System (DTRS) valued at Bt418m (exclusive of VAT). The turnkey project will run for 240 days; the terms of payment are divided into four tranches.

Positive for SAMTEL 

We had expected that SAMTEL to win the DTRS project, so had already factored it into our model. We estimate that the firm will book Bt90m in revenue from DTRS in 4Q12, comprising 4% (Bt7m) of our net profit forecast for the quarter (assuming an 8% net margin for the project), and 3% (Bt26m) of our earnings projection for FY13). 

TOT’s 3G Phase 1 site installation delayed to 1Q13 

SAMTEL could only install 3,500-3,700 cell sites for TOT’s 3G Phase 1, which fell short of its target of 4,000 by YE12. Hence, we have revised down our FY12 net profit forecast by 11% (to Bt800m) in order to reflect a downsized expectation for 4Q12 revenue from TOT’s 3G Phase 1—Bt700-800m against our previous 4Q12 estimate of Bt1.5bn for the project. We now forecast a Bt182m net profit for 4Q12, up 19% YoY but down 23% QoQ (our previous number was Bt280m). 

FY13 profit upgrade on a TOT’s Phase 1 delay from 4Q12 to 1Q13

In light of the delay to recognition of revenue from the TOT 3G Phase 1 project to 1Q13, we have revised up our FY13 net profit forecast by 6% to Bt990m (our 1Q13 TOT Phase 1 revenue assumption jumps to Bt1.8bn from Bt1bn). Hence, our FY13 PEG-pegged target price rises 5% to Bt22.