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Samart Corporation

FY14 earnings forecast trimmed

Samart Corporation Plc (SAMART)

Investment thesis

Due to our FY14 earnings forecast cuts of 7percent for SIM (economic slowdown) and 10percent for SAMTEL (delays to the awarding of some state agency contracts, due to the political unrest), we have trimmed our FY14 net profit projection for SAMART by 6% (to Bt1.58bn) and our YE14 target price by 11% (to Bt29), which reflects lower YE14 target prices for SIM and SAMTEL. Despite the profit forecast cut, our BUY rating stands, premised on a cheap FY14 PER of 10.4x and scope for upside from the sale of digital set-top boxes in 2Q14.

Flattish core earnings expected for 4Q13

We estimate a Bt316m net profit for 4Q13, up 22% YoY but down 20% QoQ. Excluding a net extra loss of Bt20m in 4Q13—gains on asset sales were outweighed by an FX loss—core earnings would be Bt336m, flattish YoY and down 16% QoQ. The expected flattish YoY core profit is due to a jump in SG&A. The assumed QoQ fall is tied to earnings drops at SIM (price-cutting to clear inventory) and SAMTEL (seasonality and delays to revenue recognition).

We estimate SIM's 4Q13 core earnings at Bt147m, up 21% YoY (but down 30% QoQ), led by significant rises in smart phone sales volume and mean sales price (see details in our Feb 7 SIM report). We estimate SAMTEL's 4Q13 core profit at Bt221m, up 85% YoY (but down 8% QoQ), thanks to the low 4Q12 profit base (see details in our Feb 7 SAMTEL report). The aggregate profit of unlisted subsidiaries should post a 38% YoY jump, led by CATS (profit up 7% YoY on more flights) and Vision and Security (a turnaround from a Bt12m loss to Bt16m profit on better cost control).

Scope for upside from digital set-top box sales—Bt2/share

The NBTC will issue 10m coupons for digital set-top boxes in 2014, starting April 2014. SAMART aims to take a 20percent share of a total of 40m TV set-top boxes (8m set-top box sales) within three years and targets selling 2m boxes in FY14. Conservatively assuming only 1m units are sold in FY14, a NM of 10% and a mean sales price of Bt1,200/set, the firm's FY14 net profit would rise 8% (by Bt120m) and our YE14 target price by Bt2/share. We have not yet factored this upside into our projections.

Management's FY14 guidance is too bullish

SAMART targets Bt31bn in revenue for FY14, up 34% YoY, and a Bt2bn net profit, up 40% YoY. This guidance includes anticipated income from selling 2m set-top boxes this year and SAMART U-Trans booking Bt973m in revenue from Aeronautical Radio of Thailand's Air Traffic Management project in FY14. Even factoring these items into our projection, we believe management's FY14 revenue target is too bullish.




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