Samart Telcoms

Investment thesis

The AOT’s Bt3.4bn Advanced Passenger Processing Services (APPS) project is expected to open tender in Sept or Oct and the AOT’s Bt2.5bn Five-Year Extension of Common User Terminal Equipment (CUTE) Outsource project should be signed and sealed by the end of Sept (AOT’s board will consider it on Sept 18). In light of this, we believe that SAMTEL’s YE14 project backlog will expand significantly, led by new project signings of Bt8bn in 2H14. Our BUY rating stands, premised on an FY15 earnings bounce and a cheap valuation—an FY15 PER of 11.9x. Due to the eased political climate, we believe the stock deserves to trade back up at its long-term PER of 15.4x.

The APPS project tender 

On September 4, the govt’s Budget Scrutiny Committee ordered AOT to draft a revised Terms of Reference (TOR) for the APPS project and open it to tender by the late Sept. We expect the TOR for the APPS project to be re-submitted to the Budget Scrutiny Committee and AOT’s board in Sept and the contract tender to open by Sept or Oct. The APPS project’s value is estimated at Bt3.4bn (a five-year contract with AOT). We would expect SAMTEL to start recognizing APPS revenue in March 2015 following a four-month equipment installation period. 

Assuming 45.9m passengers in 2015 and that SAMTEL would receive Bt12/passenger in revenue next year, rising at a CAGR of 4%, FY15-19, we estimate APPS revenue of Bt459m for 10M15 (5.2% upside to our FY15 top-line forecast) and Bt570m for FY16 (6% extra to our FY16 top-line forecast). We would model for a net margin of 12% for the project and net profits from APPS of Bt55m for FY15 (5.3% upside to our FY15 bottom-line forecast) and Bt68m for FY16 (5.8% extra to our FY16 bottom-line forecast). This project could add about Bt3/share to our PEG-derived YE15 target price. We have not yet factored this project into our model. 

No financial impact from the scrutiny of TOT’s 3G Phase-1 project

On September 4, 2014, the Budget Scrutiny Committee said that it will investigate the transparency of the TOT's Bt19.9bn 3G Phase-1 project after finding some irregularities that appeared to favor SAMTEL (which was awarded the project in 2011). It will submit its findings to the National Anti-Corruption Commission (NACC). 

The revenue of this project was recognized during 2011 through to 1Q14 (the last quarter of revenue). Hence, there will be no negative financial implications for SAMTEL. Assuming the worst-case scenario where the NACC finds irregularities and the Office of Attorney-General chooses to litigate, it would take many years for the case to run through the courts.