Samart Telecoms

Samart Telcoms Plc (SAMTEL)

 

Investment thesis

We upgrade our rating for SAMTEL from HOLD to BUY in anticipation of state agencies opening more tenders after the government said last week it would accelerate its expenditure program, which includes the Advanced Passenger Processing Service (APPS) that AOT recently approved. We revise up its target price to Bt30 to factor in the FY15-20 earnings upgrade from the APPS project and the re-rating of our ROE assumption. We anticipate its project backlog to recover from Bt6.9bn at YE14 to Bt10bn at YE15, underpinned by newly signed projects worth Bt10bn in FY15—the Royal Thai Police’s Digital APCO System Phase 1 (Bt3.3bn) and the BMA’s Digital Trunked Radio (Bt850m). 

AOT to sign five-year APPS project in April

The AOT board on March 25 gave its final approval to hire the 2S CONSORTIUM (2S)—comprising Somapa Information Technology Plc (SITA) and Samart Comtech Co., Ltd. (SAMART’s wholly-owned subsidiary)—for the five-year project to install the APPS system for AOT. The system checks travelers’ data before their arrival or departure and flags suspect persons. The government’s Budget Scrutiny Committee is expected to sign the contract with 2S in April.

Company’s revenue portion—Bt12 per passenger per flight …

The airport authority had announced its selection of 2S as project winner on March 6 and at the time negotiated to reduce the fee for the with 2S by 14%—from Bt32/passenger/flight (Bt13 to Samart Comtech and Bt19 to SITA) to Bt27.5/passenger/flight (Bt12 to Samart Comtech and Bt15.5 to SITA). The APPS fees are included in passenger fees, which were reduced from Bt50 to Bt35/passenger/flight—Bt12 to SAMTEL, Bt15.5 to SITA and Bt7.5 to AOT and others.  

… and FY15-16 earnings upgrade to factor in that revenue 

Assuming AOT international passengers of 56.3m in FY15 (up 10% YoY) and 60.8m in FY16 (up 8% YoY), the Bt12/passenger revenue to SAMTEL and the revenue commencement from Sept 2015 following the five months to install software and connect the system with airlines, we estimate Bt225m in revenue for FY15 (3% addition to FY15 top line) and Bt730m in revenue for FY16 (9% addition to FY16 top line). Assuming NM of 12%, we estimate Bt27m net profit for FY15 (3.2% addition to FY15 bottom-line) and Bt88m net profit for FY16 (9.4% addition to FY16 bottom-line). We have now factored the APPS project in to our model and valuation. 

Valuation re-rating and rating upgrade

We have revised up our Gordon’s PEG-based target price by 43% (to Bt30) to factor in the estimated Bt5/share incremental value from the APPS project and the re-rating of our average ROE assumption for  FY15-17 from 23% to 24.4%, prompted by an earnings upgrade.