Samart Telcoms

Samart Telcoms Plc (SAMTEL)

Investment thesis
Following the 2Q13 preview meeting, we remain positive on the 2H13 earnings outlook, premised on the signings of the two big-ticket projects. In the meantime, anticipated weak 2Q13 profit will simply constitute a one-time hit—slow progress on the 3G Phase 1 project. Our BUY rating stands, premised on a solid project backlog and a cheap valuation.
Weaker 2Q13 earnings expected
We estimate a Bt170m net profit for 2Q13, down by 26% YoY and 35% QoQ. Excluding extra items—a Bt30m FX loss in 2Q13 and a Bt37m FX gain and Bt78m gain from trading securities in 1Q13—core earnings would be Bt200m, down 13% YoY but up 37% QoQ. The assumed YoY core profit decline is attributable to heavier interest and tax expenses and lower income recognition from the 3G Phase 1 project—Bt385m in 2Q13 against Bt652m in 2Q12—based on the installation of 600 new sites in 2Q13 (4,817 sites at end-June 2013). The QoQ core profit rise is thanks to slightly higher income from 3G Phase 1 (against Bt347m in 1Q13), better OPEX control and greater other income.
Other existing projects in 2Q13 were TOT’s SchoolNet Extension, AOT’s CUTE Outsource, the PEA’s AMR Phase 2 and PortalNet, the Ministry of Justice’s IT System and TOT’s 3G Co-Site Rental. One key new project signed in 2Q13 was Chonburi CCTV Phase 3 (Bt110m in total). We assume that revenue in 2Q13 would have risen by 31% YoY and 4% QoQ. GM is estimated at 19%, basically unchanged QoQ.
TOT’s 3G Phase 1 project completion delayed to 4Q13
SAMTEL had installed 4,817 3G sites at end-June 2013 and expects to complete all 5,270 sites by October. We assume that it will recognize the remaining Bt1.3bn in revenue for 453 new sites in 2H13— Bt850m in 3Q13 and Bt419m in 4Q13. Hence, we expect 3Q13 revenue and net profit to jump on the rescheduling of income from 3G Phase 1 to 3Q13. With regard to AOT’s Advanced Passenger Processing Service (APPS) project, its Terms of Reference (TOR) have been completed; the AOT board is likely to approve the TOR in August. The tender will open in Sept and contract signing is expected in October.
YE13 backlog target guidance of Bt29bn
The project backlog was Bt8bn at end-June. SAMTEL maintains its YE13 project backlog guidance at Bt29bn, which includes TOT’s Bt20bn 3G Phase 2 and AOT’s Bt5bn APPS projects. Besides the Bt193m Ministry of Interior’s Network Satellite project, signed in July, and the aforementioned deals, the firm expects to sign four other contracts in 2H13—the Dept of Land’s E-Title Deeds (Bt1.7bn), PEA’s Incremental SAP License (Bt420m), AOT’s AIMS Network Migration (Bt380m) and TOT’s 3G Extension (Bt350m).