Samart Corporation

Samart Corporation Plc (SAMART)
What’s new?
One to One Contacts Plc (OTO) will list on the MAI in mid May 2014. A total of 80m shares will be up for sale in the IPO, comprising: 1) 10m shares currently held by SAMART and 2) 70m newly-issued shares. Of those 80m shares, 20m shares have been reserved for sale to current SAMART shareholders (pre-emptive rights) and 60m shares will be offered to the public.
SAMART has direct and indirect stakes of 99.2% in OTO—SAMART (96%), Samart Comtech (2%), SAMTEL (1%) and Samart Engineering (1%). Following the IPO, we estimate that SAMART will have direct and indirect stakes of 71.3% in OTO. The pre-emptive rights ratio is 50.3165 shares of SAMART to one share of OTO, which will be offered to existing shareholders at the IPO price. The pre-emptive rights subscription period will run April 28-May 2, 2014. The IPO subscription period will run May 6-May 8.    
OTO to contribute 7% to SAMART’s FY14 net profit
We estimate OTO’s top-line CAGR at 13% and net earnings CAGR at 11%, FY14-20. Our model indicates that OTO’s FY14 revenue will jump 30% YoY to Bt890m. Its FY14 net profit will also jump 30% YoY to Bt116m, we forecast, led by contact center outsourcing business and turnkey sales, GM expansion for outsourcing services and lower interest expenses following debt repayments in FY13.
OTO’s projected FY14 top-line and bottom-line comprise 3.5% and 7.1%, respectively, of SAMART’s consolidated revenue and net profit. More than 70% of OTO’s client portfolio comprises contract renewals (contract durations normally range 1-3 years), so its profit and cash flow profiles are secure.
Upside to SAMART target price from OTO—Bt0.7-Bt1.15/share
The listing of OTO on the MAI in May will unlock its value in our SAMART sum-of-the-parts target price. Following its listing, we will change our valuation method for OTO in our SAMART equity value from a PER peg to a market capitalization-based approach, which will boost its equity value in our SAMART model. Based on an estimated OTO value range of Bt6.25-8.61/share, its value for SAMART would rise from Bt0.57/share to Bt1.25-1.72/share (up by 119-202%). Hence, our SAMART YE14 target price would rise from Bt29 to Bt29.68-30.15/share (up in the range of 2.3-4%).
We have not yet factored in the upside from unlocking OTO’s value. Note that SAMART will not book a Bt32m realized (net-of-tax) gain from its sale of 10m OTO shares to its income statement, but straight to retained earnings. Our BUY rating stands, premised on a cheap FY14 PER of 11.4x and scope for upside from the sale of digital set-top boxes and the listing of OTO this year.