Samart Corporation

Samart Corporation Plc (SAMART)
Investment thesis
Following the analyst meeting, we remain confident in SAMART’s 2H14 core earnings rebound (despite an expected weak 2Q14 core profit), underpinned by SIM’s smart phone sales, more state project tenders in 3Q14 (boosting SAMTEL’s 4Q14 earnings), a higher OTO profit on the new turnkey projects and recognition of set-top box sales in Sept 2014. SAMART remains our top pick of SAMART group, premised on a 2H14 core profit jump and scope for upside from new projects for SAMTEL, Teda, Samart U-Trans, OTO and Vision & Security in 2H14. 
The core profit drop expected for 2Q14—dragged by SAMTEL
We estimate a Bt403m net profit for 2Q14, up by 13% YoY and flattish QoQ. Excluding extra items in 2Q14—a Bt40m insurance payout for fire damage and a Bt6m FX gain—core profit would be Bt367m, down by 12% YoY and 6% QoQ. The expected core profit drop is due to SAMTEL’s weaker core profit (flattish core earnings for SIM and stronger profits at non-listed companies notwithstanding).
- SIM: Bt285m core profit—flattish YoY and up 46% QoQ—led by heavier tax and interest expenses, which probably offset the effect of a fatter gross profit (details in SIM report, July 29).
- SAMTEL: Bt118m core profit—down by 42% YoY and 41% QoQ—due to delays to planned tenders for state projects. SAMTEL signed only Bt413m in new projects during the quarter. 
- OTO: Bt23m net profit—up 15% YoY but down 10% QoQ—led by greater turnkey sales (Bt27m). GM is assumed at 22%, down from 25% in 1Q13 and 4Q13, due to greater low-margin turnkey sales. OTO signed new projects worth Bt613m during the quarter.
- Non-listed firms: All non-listed firms except Samart Engineering (SE) posted YoY profit rises. We estimate that the aggregate earnings of non-listed subsidiaries rose 176% YoY, led by the Kampot power plant (up 33% YoY), CATS (up 3% YoY) and turnarounds of Vision and Security and Teda. SE’s net loss is assumed to be 51% YoY deeper in the red.
New contract signings expected in 2H14
We expect SAMTEL’s new contract signings at Bt7-8bn (excluding the APPS project) in 2H14, led by the Ministry of Education’s Smart Classroom (Bt2.9bn) and AOT’s CUTE Outsource Extension (Bt2.5bn). Samart U-Trans is expected to sign Bt470m turnkey project in 3Q14. Moreover, we expect Teda to sign new power substation projects worth at least Bt1bn in 2H14, VSS to bid for a security camera project worth Bt500m in 3Q14 and OTO to sign new contracts worth Bt340m in 2H14 (77% of which are turnkey projects).