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Samart Corporation

Set-top box sales now in our model

Samart Corporation Plc (SAMART)

Investment thesis

Following the preview meeting, we remain confident about SAMART's 1Q14 core earnings profile, led by strong core profit growth at SIM, SAMTEL and among non-listed subsidiaries (despite the consumption slowdown and political uncertainty). We have lifted our FY14-17 net profit forecast to factor in digital set-top box sales and raised our YE14 target price 5% to Bt30.5. Our BUY rating stands, premised on a core profit jump in 2H14 and scope for upside from the acquisition of power and utilities plants, 2H14-FY15.

Strong core earnings expected for 1Q14

We estimate a Bt385m bottom-line for 1Q14, up by 9% YoY and 6% QoQ. Excluding a Bt5m FX gain in 1Q14 and other extra items in 1Q13 and 4Q13, core profit would be Bt380m, up 24% YoY but down 7% QoQ. The expected solid YoY core profit rise is due to lower SAMTEL interest expenses, lower income tax expenses for SIM and greater other income and stronger profits among non-listed subsidiaries. The assumed QoQ core earnings decline is attributable to a drop at SAMTEL related to political uncertainty.

We estimate SIM's 1Q14 core profit at Bt193m, up by 16% YoY and 2% QoQ, led by lower income tax expenses and higher other income. Its smart phone sales volume is assumed at 730k, up by 91% YoY and 30% QoQ, and its mean sales price is estimated at Bt2,936, up by 15% YoY and 11% QoQ. We model that GM declined to 19%, from 25.1% in 1Q13 and 24.1% in 4Q13, due to price-cutting to clear inventory.

SAMTEL's 1Q14 core profit is estimated at Bt202m, up 39% YoY (but down 4% QoQ), thanks to lower interest expenses. Its revenue is assumed to have dropped by 3% YoY and 12% QoQ—planned tenders for state projects have been delayed in the prevailing dysfunctional political environment. The aggregate earnings of non-listed subsidiaries should post a 47% YoY jump, led by CATS (profit up 61% YoY on more flights), Kampot power plant (up 15% YoY) and Vision and Security (a turnaround from a Bt2m loss to Bt10m profit).

Digital set-top box sales factored in—Bt1.50/share

We assume that SAMART will take a 20percent share of nationwide sales of set-top boxes and antennae (8m units of a total of 40m TV set-top boxes) within three years and conservatively model for only 1m unit sales in FY14 (management's FY14 target range is 1.5-2m units). Assuming a NM of 10% and a mean sales price of Bt1,000/set, we have upgraded our FY14 top-line projection by 4% to Bt25.9bn and our FY14 net profit forecast by 6% to Bt1.71bn. Our YE14 target price rises 5% to Bt30.50.




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