One to One Contacts

One to One Contacts Plc (OTO) 

 

Investment thesis   

Following our recent discussion with SAMART, we reaffirm our BUY rating on OTO, due to its strong 2H14-FY15 earnings growth profile—led by our estimated new contract signings of Bt250m in 2H14 and a big YE14 contract backlog of Bt1bn—and a discounted valuation. There is scope for upside from additional outsourced service revenue related to Samart Engineering’s (SE) digital set-top box sales through OTO’s contact centers in Sept (10% of SE’s set-top box sales will be sold through OTO) and expansion into CLMV markets. Our new YE15 PEG-derived target price is Bt8.80 (rolled over from YE14).

2Q14 results recap—in line with estimate 

OTO posted a Bt23m net profit for 2Q14, up 15% YoY but down 10% QoQ. The result was in line with our estimate. The YoY rise was due to a jump in turnkey sales revenue, a modest increase in outsourced service revenue, fatter GM for turnkey sales and better SG&A control. The top-line jumped 22% YoY, led by turnkey sales (up 264% YoY) and outsourced service revenue (up 4% YoY). Turnkey sales expansion was led by two clients—the Bank of Agriculture & Agricultural Co-operatives (Bt65m in total; Bt17m in 2Q14) and TOT (Bt10.3m in total; Bt9.8m in 2Q14). GM for turnkey sales jumped to 21% (16% in 2Q13).

The modest rise in outsourced service income was driven by three major clients—SSO (Bt511m in total; Bt28m in 2Q14), Thai Air Asia (Bt337m in total; Bt14m in 2Q14) and Bangkok Airways (Bt133m in total; Bt11m in 2Q14). OTO signed new projects worth Bt613m in 2Q14—SSO (Bt511m), PEA (Bt19m), Bangkok Airways (Bt10m), Aegon (Bt63m) and Pruksa (Bt11m). The contract backlog was Bt1.33bn at end-June 2014.

Estimated contract backlog of Bt1bn at YE14

The firm expects to sign Bt341m in total new contracts in 2H14—TOT (turnkey; Bt180m), Revenue Department (turnkey; Bt40m), one unnamed airline (recurring; Bt24m), one Cambodian telco (turnkey; Bt29m) and others (Bt68m). We conservatively estimate Bt250m in total new contract signings in 2H14, assuming some delays to contract signings with state agencies, due to NCPO scrutiny. We assume only Bt100m in new contract signings with TOT in 2H14. We expect a solid Bt1bn contract backlog at YE14.

Estimate a robust YoY rise of 3Q14 earnings

We estimate a Bt30m net profit for 3Q14, up by 52% YoY and 33% QoQ. We assume Bt228m in 3Q14 revenue, up by 39% YoY and 21% QoQ, led by recognition from existing contracts (Bt180m) and newly-signed contracts (Bt48m). Revenue from key existing contracts in 3Q14 includes SSO (Bt43m), Thai Air Asia (Bt15m), Bangkok Airway (Bt11m) and BAAC (Bt10m). Revenue of new contracts in 3Q14 includes TOT (Bt21m), the Revenue Department (Bt16m), others (Bt11m).