Samart I-Mobile

Samart I-Mobile Plc (SIM)

Investment thesis

We have upped our earnings projections by 7% to Bt1.12bn for FY14 and by 10% to Bt1.28bn for FY15 in anticipation of two big-lot sales of handsets to Thai mobile operators. There may also be upside to our model from selling analog-to-digital converter set-top boxes through SIM dealers and increased overseas volume in Myanmar (new dealerships) in 1Q15 (SIM targets Myanmar sales volume of 1m in FY15). Our BUY rating stands, premised on a strong FY15 earning growth profile and a cheap valuation—an FY15 PER of 12.9x.
Two big-lot sales to Thai mobile telcos ahead
SIM will make a big-lot sale of about 500k handsets to one unnamed Thai mobile operator in 4Q14; revenue recognition might be spread out between 4Q14 and 1Q15. The big-lot sale will yield a fat margin of 20-30% (the same as its other smart phone models) but a much lower sales price of Bt1,700-1,800/unit (its 1H14 mean sales price was Bt2,817/unit). We expect a second big-lot sale to another unnamed Thai mobile operator in 1H15 for a higher mean sales price.
FY14-15 net profit forecasts revised up
SIM sold 2.37m units of handsets in 1H14. Assuming 1.1m units in 3Q14 and 1.35m units in 4Q14 (led by 250k units in a big-lot sale), we now estimate 4.82m units of handsets sold for FY14, which is higher than our earlier assumption of 4m units sold during FY14.
Hence, we have revised up our sales volume assumptions by 20% for FY14 (to 4.8m) and by 17% for FY15 (to 5.2m) to factor in two big-lot sales of handsets. However, we have cut our GM assumption to 23.5% (from 25%) for FY14 and to 22% (from 23.5%), as we expect slimmer GMs for the big-lot sales. As such, our net profit forecasts rise by 7% to Bt1.12bn for FY14 and by 10% to Bt1.28bn for FY15. Our YE15 PEG-based target price increases 17% to Bt5.50.
Scope of upside—distribution margin of set-top box sales
The NBTC will announce the digital set-top box sellers on Sept 15, 2014. It expects to start distributing the first tranche of 11.5m coupons by the end of Sept. The coupons will reach households no later than Oct 16, 2014. SIM aims to sell set-top boxes through its modern trade dealers.
Assuming set-top box sales of 1m units in FY14 and 2m units in FY15, a Bt690m set-top box sales price and a distribution net margin of 4-5%, which SIM will charge Samart Engineering, we estimate that it would add Bt14-18m our FY14 net profit forecast (1.3-1.6% extra to FY14 net profit) and Bt28-35m to our FY15 net profit forecast (2.2-2.8% extra to FY15 net profit). We have not yet factored this scope for upside into our model.