Samart Corporation

Samart Corporation Plc (SIM) 

 

Investment thesis

We have upgraded our FY14-15 earnings projections for SAMART to factor in two anticipated two big-lot sales of handsets for SIM during 4Q14-1H15. Hence, our SAMART YE15 target price rises 8% to Bt35. In the near future there would be upside if SAMTEL were to win AOT’s Advanced Passenger Processing Services (APPS) project, which could add Bt1.3/share to our SAMART target price. Over the longer view, the possibility of PPAs for two power plants in Cambodia in 4Q14-1H15 (to supply electricity to Thailand) and acquisitions of Thai utilities firms in FY15 would mean long-term upside. Our BUY rating stands.

SIM’s FY15-16 earnings upgrade from two big-lot handset sales

SIM will sell about 500k units of handsets to one unnamed Thai mobile operator in 4Q14, which will be recognized during 4Q14-1Q15. GM from the big-lot sale will be 20-30% (close to its other smart phone models) but at a much lower sales price of Bt1,700-1,800/unit. We also expect a second big-lot sale to another unnamed Thai mobile operator for a higher sales price in 1H15. 

We have revised up our handset sales volume assumptions for SIM by 20% for FY14 (to 4.8m units) and by 17% for FY15 (to 5.2m) to factor in the two big-lot sales. As such, our net profit for SIM rises by 7% to Bt1.12bn for FY14 and by 10% to Bt1.28bn for FY15 and its YE15 PEG-based target price by 17% to Bt5.50. SAMART holds 70% of SIM, so we have upgraded our SAMART’ earnings projections by 3% to Bt1.79bn for FY14 and by 5% to Bt2.06bn for FY15. Our YE15 sum-of-its-parts target price for SAMART increases 8% to Bt35, due to our SIM target price upgrade.

Near-term scope for upside for SAMTEL—the APPS project

On Sept 4, the govt’s Budget Scrutiny Committee ordered AOT to draft a revised Terms of Reference (TOR) for the five-year Bt3.4bn APPS project and open it to tender by late Sept (we assume some timeline slippage, so expect the tender to open by Oct). If SAMTEL were to win the APPS contract, it would start recognizing revenue from the project in March 2015. 

Assuming 46m passengers in 2015, a passenger CAGR of 4% per annum, FY15-19, a Bt12/passenger fee that SAMTEL would receive from AOT and a net margin of 12% for the project, we estimate that it would add Bt55m (5.3%) to SAMTEL’s FY15 net profit and Bt68m (5.8%) to its FY16 net profit. As such, SAMTEL’s PEG-based target price would rise by Bt3. As SAMART holds 70.2% of SAMTEL, we estimate that it would add Bt39m (3.5%) to our SAMART FY15 net profit forecast and Bt48m (3.7%) to our FY16 net profit forecast. Hence, our YE15 sum-of-its-parts target price for SAMART would rise 3.7% to Bt36.3.