Samart I-Mobile

Samart I-Mobile Plc (SIM)

Investment thesis
Following the preview meeting, we have trimmed our FY14 earnings forecast by 7% to factor in a slimmer GM assumption (from 24.5% to 22.6%), due to anticipation of price-cutting amid the economic slowdown. Despite the projection cut, our BUY rating stands, premised on solid FY14 profit growth, an expected MVNO turnaround and good smart phone sales. Our YE14 target price dips to Bt4.40 from Bt4.85.
Anticipate robust 4Q13 earnings
We estimate a Bt155m net profit for 4Q13, up 73% YoY but down 30% QoQ. Stripping out a Bt15m FX gain and a Bt7m loss from asset sales, core profit would be Bt147m, up 21% YoY but down 30% QoQ. The assumed YoY core profit rise is attributable to heavier smart phone sales volume and a higher mean sales price/unit. The expected QoQ drop is due to dive in GM caused by price-cutting to clear inventory and a deeper loss at the MVNO unit. We estimate 4Q13 blended GM at 15%, down sharply from 21.6% in 4Q12 and 22.8% in 3Q13.
SIM guides that it sold about 1m units of handsets in 4Q13—558k units of smart phones (up by 64% YoY and 37% QoQ) and 446k units of feature phones (down by 28% YoY and 4% QoQ). Almost all the sales were branded i-mobile. We estimate the 4Q13 mean sales price/unit at Bt2,629, up 18% YoY (led by a higher proportion of smart phones in the sales mix) but down 9% QoQ (due to price-cutting). The mean i-mobile sales price is assumed at Bt2,628, up 23% YoY but down 9% QoQ.
Active MVNO subs totaled 400k at YE13, up 14% QoQ. We estimate the MVNO’s 4Q13 net loss at Bt28m, 40% QoQ deeper in the red.
Good 1Q14 handset sales amid the economic slowdown
Despite the economic slowdown, SIM guides for handset sales of Bt900m for Jan—10% above the mean monthly sales value posted for 1Q13—led by greater smart phone sales in the provinces (about 70% of SIM’s total handset sales by value). We forecast a Bt200m core profit for 1Q14, up by 20% YoY and 36% QoQ, led by greater smart phone sales volume and a higher mean sales price/unit. 
Management guidance for FY14
The firm targets total handset sales volume of 4m (up 6% YoY), 2.8m of which is to be smart phones (up 62% YoY), and a blended mean sales price of Bt2,900 (up 11%). Management guides that the MVNO will break even in FY14 (against a loss of Bt95m for FY13) with 900k subs and YE14 total subs of 1.5m. SIM targets a Bt13bn top-line (up 13% YoY) and a net profit exceeding Bt1bn for the year. We model for handset sales of 4.03m units with a mean sales price of Bt2,563/unit (more conservative than SIM’s guidance), total MVNO subs of 1.1m at YE14 and MVNO break-even in 4Q14.