Samart Corporation

Samart Corporation Plc (SAMART) 

Investment thesis
We have upgraded our SAMART YE13 target price by 29% to Bt33 to reflect: 1) earnings and target price upgrades to Bt4.70 for SIM and 2) a PER re-rating for SAMART’s non-listed businesses (from 15x to 19x). Our BUY rating stands, premised on solid FY13 earnings and upside from Samart Engineering winning a digital network license in 2Q13, digital-to-analog set-top converter box sales in 2H13-FY14 and two big-ticket state agency contracts for SAMTEL.
SIM’s robust smart phone sales estimate in 1H13
We expect SIM to sell 910K units of handsets in 1Q13—455K of which are smart phones (against 340K units in 4Q12 and 1,838 units in 1Q12). We assume a Bt2,556 mean sales price, up by 114% YoY and 17% QoQ, due to a greater proportion of smart phones in the sales mix and the launch of the higher-priced “IQ6” handset. GM will expand to 23% (from 21.6% in 4Q12 and 17.1% in 1Q12). We estimate that SIM will post a Bt180m 1Q13 profit, up by 634% YoY and 117% QoQ. We forecast sales of 1m units in 2Q13, led by two new smart phone models—Quad Core and BSI Camera—and high season. The mean price and GM in 2Q13 should be close to the numbers for 1Q13.
E-auction of 1.8m Tablets-for-students procurement in April
We expect the TOR for the 1.8m Tablets-for-student procurement contract to be published during April 3-5. Applicants will submit technical proposals on April 17, 2013. The ministry will announce the qualifying applicants on April 19. The E-auction should start on April 25; contracts should be signed on May 9-10. SIM is confident of winning a 400K-unit chunk of the procurement. We have already factored this deal into our FY13 model. As such, we have upgraded our SIM FY13 earnings forecast by 33% to factor in: 1) greater FY13 handset sales volume and 2) a Bt56m net profit from the Tablets-for-students procurement contract (see SIM report, March 18, 2013).
Incremental value from digital network provider license
The NBTC has called upon four short-listed private operators—MCOT, SAMART, INTUCH and True—to test-run digital network equipment and transmitters by the end of March. We expect the commission to award digital network provider licenses in 2Q13. There are three digital network provider licenses up for grabs. Samart Engineering is well-placed to win one, which would add Bt2-3/share to our target price. Moreover, it plans to sell digital-to-analogue set-top conversion boxes, starting Aug 2013; its sales target is 1m units in 2H13 and 10m units in FY14. SAMART aims for a 40% share of a total of 22m units.