Jay Mart

Jay Mart Plc (JMART)

JMART will harvest the rapid industry growth over 2012-2014
2013F: mobile phone sales revenue growth of 39% YoY to Bt10bn, net profit growth of 59% YoY to Bt485mn, gross margin of 15%, net margin of 5%  
Mobile phone sales contribute 93.5%, with gross margin of 13.5%; rest is debt collection (50% gross margin) and space rental (16.7% gross margin)
JMART is a defensive growth stock; recommend BUY with TP of Bt34

Reaping harvest of rapid industry growth. Now that 3G can really take off, with licenses issued to operators in 2012, we expect to see rapid migration of subscribers to 3G from 2G, with a commensurate growth in smartphones. JMART leads the pack of mobile phone distributors and is positioned to reap a good harvest as consumers turn in their basic phones for smartphones and add tablets to their tech must-haves. The proportion of smartphones to basic phones is expected to switch to 60:40 this year from 54:45 last year, with the proportion of smartphones to continue to grow rapidly through 2014.
Strong growth from mobile phone business in 2013. Mobile phone sales contribute an average of 93.5% of total revenue per year but 80% of net profit, with a gross margin of 13.5%. It has two other areas of business, bad debt collection and space rental, both of which offer higher margin – debt collection at 50% and space rental at 16.7%; we expect them to contribute proportionately more down the road. JMART’s average selling price per unit in 2012 was Bt6,600 and this is expected to grow to Bt6,750 per unit in 2013, with a jump in number of phones sold of 37% YoY to 1.5mn. We estimate 39% YoY growth in mobile phone sales revenue in 2013 to Bt10bn.   
Impressive net profit growth in 2013F. 2013 net profit is estimated at Bt485mn or Bt1.17/share +59% YoY. DPS is expected at Bt0.58/share or a 50% payout ratio. We expect JMART to maintain its gross margin between 12-15% and net margin at 4-5%. We see the years 2012-2014 as a sea change for the mobile phone industry as a whole and thus JMART’s mobile phone business as users flock to smartphones. After this, the other two businesses will become more essential to delivering good growth.
Valuation and recommendation. With a focus on distributing mobile phones, JMART is the lead player in the non-network operator part of the industry. With the industry finally getting both feet into 3G, we expect 2012-2014 to be golden years for JMART. We value JMART using DCF and derive a fair value of Bt34/share, assuming risk-free rate (RFR) of 4.5%, WACC of 11%, beta of 1.1 and terminal growth for 7 years of 2%. We see JMART as a play on defensive growth and rate it a BUY.