Jasmine International

Jasmine International Plc (JAS) 

 

- Normalized profit drop, paying rent to JASIF for full quarter 

2Q15 net profit was B1bn, rising 14%yoy but plummeting 92.1%qoq because of extraordinary profit of only B253m in 2Q15 (B297m from selling of asset into JASIF minus B44m Fx loss), versus B12bn from selling of asset into JASIF in 1Q15. Excluding extraordinary items, JAS's normalized profit was B754m, falling 3.6%qoq and -14.9%yoy even though total revenue grew by 3.8%qoq because the number of hi-speed internet subscribers (net adds) increased by 98,000 (a quarterly new high, better than 68,000 gain expected) thanks to coverage expansion in other provinces. However, JAS had to pay optical fiber cable rental fee to JASIF for the first full quarter (booked for half quarter in 1Q15), thus weakening profit margin from 23.8% in 1Q15 to 22% in 2Q15. 

- 2H15 normalized profit to grow from new subscribers 

3Q15-4Q15 normalized profit would improve from 2Q15 since the company likely has already absorbed an effect from JASIF’s asset lease for a full quarter in 2Q15. Service revenue would increase continuously from new subscribers, possibly exceeding our forecast of B68bn/quarter, which means JAS’s net addition in 2015 could be 340,000 subscribers, versus our initial forecast of 270,000. However, FY2015 net profit may beat our initial forecast by only 5%. Given the current sluggish economy, we keep our conservative view, maintaining 2015 normalized profit forecast at B2.7bn or a decrease of 25%; including extraordinary profit from asset sales to JASIF, 2015 net profit would be B14bn or a fourfold growth from the prior year. 

- Share price already absorbs concern, but upside still not attractive 

JAS has two long-term threats: 1) TT&T's lawsuit demanding TTTBB (JAS's main source of income) shares back, which is currently under the court's deliberation, and 2) weaker profit from the internet business due to aggressive 4G investment (see page 2). We conservatively switch to use the new fair value based on PBV of 2x (average PBV minus 1SD) of B5.6, implying a limited upside. Since the share price has already absorbed negative factors, we upgrade our recommendation from SELL to HOLD.