Samart Telcoms

Samart Telcoms Plc (SIM) 

Investment thesis

Although we trimmed our FY15 net profit forecast to reflect the weaker blended GM in 2Q15, we remain bullish and reiterate our BUY rating on SAMTEL, due to its strong earnings bounce in 2H15, underpinned by the greater combined value of newly signed projects and a significant jump in the YE15 project backlog. We believe that the 1Q15 earnings marked the bottom, to be followed by a modest 2Q15 rise and a big 2H15 jump. 

Insights into 2Q15—a modest YoY core profit rise 

We estimate a Bt132m net profit for 2Q15, down 29% YoY but up 10% QoQ. Excluding a Bt5m FX gain and a Bt3m loss from the sale of marketable securities in 2Q15, core profit would be Bt130m, up 11% YoY and 4% QoQ. The YoY core profit rise is due to the drop in SG&A and interest expenses, which should have outweighed the modest revenue drop caused by the slow tenders opening for state agency projects in 1H15. The modest QoQ rise is led by greater value of new projects signed in 2Q15—Bt1.4bn in 2Q15 against Bt533m in 1Q15 and Bt411m in 2Q14—which included Bangkok Metropolitan Administration’s (BMA) Digital Trunked Radio (Bt851m) and the Ministry of Interior’s (MOI) Network Equipment Upgrade System (Bt311m) and others (Bt266m). 

The project backlog rose to Bt6.03bn at the end of June, close to Bt6.09bn at end-March. We estimate 2Q15 revenue of Bt1.45bn, down 5% YoY but up 8% QoQ, which comprises Bt1bn revenue from projects signed before end-March and the remainder from those signed during 2Q15, and GM of 18% for 2Q15 (flattish YoY, against 25.2% in 1Q15). 

FY15 earnings downgrade and target price cuts  

We trimmed our FY15 net profit forecast by 10% (to Bt728m) to reflect the lower FY15 GM assumption (from 19.7% to 19.3%) given the weaker-than-expected GM in 2Q15. However, we have maintained our FY15 top-line forecast at Bt7.2bn, which is still more conservative than the firm’s FY15 top-line target of Bt8bn. Our target price dips 5% to Bt27. 

APPS project finally inked; backlog to jump to Bt10bn by YE15

On July 21, AOT sent a letter of confirmation to hire the 2S Consortium, comprising Samart Comtech Ltd, SAMTEL’s subsidiary, and SITA, to provide the Advanced Passenger Processing Service (APPS) for five years (Bt2.88bn in project value, based on fees of Bt11.77/passenger and the rising number of passengers from 56m in FY16 to73.4m in FY20). We had already factored the APPS project into our model since late-March. We estimate the value of newly signed projects at Bt8-10bn in 2H15 and a Bt10bn project backlog at YE15 (up 45% YoY), led by the APPS project, the Royal Thai Police’s Digital APCO System (Bt3bn), the Public Relations Department’s Digital TV Phase 2 (Bt1bn), the BMA’s Security System (Bt1bn), the Department of Land’s E-Title Deed Phase 2 (Bt800m) and PEA’s AMR Phase 1 Extension and Phase 2 (Bt570m).