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Jasmine International

Fiercer competition in long-run HOLD

Jasmine International Plc (JAS)

- Low expense and debt provision boost 1Q14 profit

1Q14 net profit was reported at B852m, growing 12.5%qoq. B35m

extraordinary expense recognized in 4Q13 was not booked in 1Q14.

Excluding extraordinary items, normalized profit rose by only 7.7%qoq.

Overall revenue stayed qoq at B2.9bn. Revenue from hi-speed internet

business rose by 4.6%qoq as the number of subscribers increased from

4Q13 by 60,000, as more subscribers set up home-wifi at home for

smartphone. Revenue from other business slipped by 23%qoq, but negated

by the following positive factors: 1) Cost of service dropped by 5%qoq

(currently finding the cause; probably thanks to negotiation on overseas

internet connection cost reduction and good control on expense). 2) Debt

provision decreased from 4Q13 by B54m.

- Revise up net profit forecast to reflect lower debt provision

We project FY2014 normalized profit to grow further for the remainder of this

year. The number of internet subscribers is expected to increase; demand for

home-wifi has been rising as more people use smartphones. B3.3bn debt

provision might be cut. JAS previously made a haircut during its business

rehabilitation plan, then the court overturned the plan in 2003. Initially, JAS

intends to make a debt provision in case that the creditors make claims for

remaining debts. As the creditors have not shown up and negotiated for

remaining debts, we exclude the debt provision from new forecast. Under

this new forecast, JAS’s FY2014 net profit is projected to grow by 34.5% to

B4bn.

- Fiercer competition in long run due to new rivals

Conservatively, we maintain our FY2014 fair value at B9.20 (including the

risk from debt provision), implying 11% upside. New rivals (ADVANC and

CTH) have started their internet businesses, so the competition would be

fiercer in the long run. JAS would benefit from an infrastructure fund

(currently waiting for SEC’s approval) which might grant a large

extraordinary profit (good for short-term speculation). However, after the

fund is established, normalized profit might be pressed. JAS would have to

rent asset from the fund (B4.8bn/year in the first two years and B9.0bn/year

in the next nine years). Also, benefit from fund (investment on technology to

expand subscriber base) would not be strong enough to compensate for the

rental cost (network expansion takes time, and new rivals have been

introduced).


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