Samart Telcoms

Samart Telcoms Plc (SAMTEL)

Investment thesis
The perilous state of the government is almost certainly going to mean delays to the awarding of some state agency contracts, which weakens SAMTEL’s FY14 earnings outlook. As such, we have cut our FY14 forecasts by 10% for the top-line (to Bt9.8bn) and by 10% for net profit (to Bt970m). Hence, our YE14 target price falls 15% to Bt22. But we stand by our BUY call, premised on a cheap valuation. Note that there is risk of further downside to our FY14 earnings projection.
Robust 4Q13 core profit expected
We estimate a Bt185m net profit for 4Q13, up 32% YoY but down 18% QoQ. Excluding a Bt16m FX loss and a Bt20m loss on the sale of an asset in 4Q13, core earnings would be Bt221m, up 85% YoY but down 8% QoQ. The assumed YoY core profit jump is attributable to the low 4Q12 comparison (squeezed by a high effective tax rate). The expected QoQ drop is due to lower revenue (seasonality—the govt’s fiscal-year budget ends in Sept—and delays to revenue recognition). We now estimate a Bt2.2bn top-line for 4Q13 (up 6% YoY but down 17% QoQ), which is substantially below our previous forecast of Bt3bn. GM is assumed to have declined to 21% from 22.5% in 4Q12.
The estimated Bt2.2bn in revenue comprises Bt1.8bn from projects signed before October 2013 and Bt400m from new contracts signed during 4Q13. SAMTEL signed new contracts worth Bt1.8bn during the quarter—AOT’s CUTE Phuket Phase 2 (Bt760m in total; Bt15m in 4Q13), the PEA’s BPM System (Bt335m in total; Bt140m in 4Q13) and other small deals (Bt700m in total; Bt250m in 4Q13). The YE13 project backlog was a fairly substantial Bt7.5bn (Bt9.7bn at YE12).
TOT Phase 1 income in 4Q13 close to 3Q13
SAMTEL recognized 3G Phase 1 revenue of Bt447m in 4Q13 (5,000 cumulative sites at YE13). We expect it to install the remaining 320 cell sites in 1Q14 (5,320 in total by end-March 2014) and recognize the remaining Bt372m in revenue in 1Q14. Management expects the AOT’s Advanced Passenger Processing Service (APPS) project tender to re-open in early March and contract signing in 2Q14.
Management YE14 backlog target of Bt17bn—too aggressive
The firm has so far this year signed Bt1.3bn in new contracts—Bt800m with the Police Department in Jan and a Bt500m contract with the MEA last week. SAMTEL will bid for the PRD’s Bt900m digital network installation contract later this month. It expects to sign new contracts worth Bt20bn (including the Bt3bn APPS project in 1Q14, which it believes it will win) in FY14 and targets a Bt16.5bn project backlog at YE14. Management guides for Bt11bn in revenue (up 20% YoY) and a Bt1bn in net profit (up 18% YoY) for FY14. We believe that the guidance for this year is far too bullish, given that the prevailing political uncertainty will make state agencies hesitant to open new projects to tender.