Samart Corporation

Target price upgrade

Samart Corporation Plc (SAMART)

Investment thesis

Following the 4Q12 preview meeting, we remain bullish on SAMART's 4Q12-FY13 outlook. We have upgraded our FY13 earnings projection by 21% to factor in profit expansion by both SIM and SAMTEL. As such, our SOTP target price jumps 50% to Bt25.5. Our BUY rating stands in anticipation of SAMTEL building a big YE13 project backlog and an FY13 earnings recovery for SIM.

Robust Q4 2012 earnings expected

We expect SAMART to post net earnings of Bt260m for 4Q12, up 73% YoY but down 9% QoQ. Excluding FX and other extra items, core profit would be Bt225m, up by 54% YoY and 27% QoQ. The drivers were a YoY bottom-line turnaround at SIM (an Bt80m net profit in 4Q12 against a 4Q11 loss) and 19% YoY profit growth at SAMTEL. SIM's expected 4Q12 turnaround was led by a jump in i-mobile sales prices and fatter blended GM. SAMTEL's YoY growth is due to the low 4Q11 profit base (flooding) and better OPEX control. We expect other businesses to post flat YoY numbers for 4Q12.

SAMTEL's project backlog to jump to Bt30bn at YE13

Management guides that SAMTEL's backlog will rise to Bt30bn at YE13, up 209% YoY, as it expects the following projects: 1) the TOT's 3G Phase 2 (the tender is likely to open in June), 2) the Advanced Passenger Processing Service (APPS; tender expected in March; signing in 2Q13) and 3) four other projects worth Bt5.4bn, 1Q13-4Q13—an IT system for the Ministry of Justice (Bt1.1bn) in 1Q13, the Department of Land's National Map project (Bt1.5bn) in 2Q13, the Provincial Electricity Authority's Smartgrid project (Bt1bn) in 3Q13 and an APCO Trunk Radio installation for the police (Bt1.8bn) in 4Q13.

Earnings recovery for SIM

We now expect SIM's FY13 earnings to jump 203% YoY, driven by higher handset sales prices and fatter GM in tandem with heavier sales of smart phones. Its MVNO business should turn around by YE13 at 500K subs. Moreover, the firm is confident that it will win a slice of the govt's Bt4.5bn Tablet project in 2Q13.

Upgrades to our SAMART earnings forecast and target price

We have revised up our SAMART FY13 earnings projection by 21% to factor in net profit forecast upgrades of 302percent for SIM (to Bt490m) and 13percent for SAMTEL (to Bt1.1bn, as we added the IT system for the Ministry of Justice to our model). Hence, our SAMART SOTP-derived target price rises from Bt17 to Bt25.5 to reflect higher target prices for SIM (from Bt0.43 to Bt3) and SAMTEL (from Bt22 to Bt26).