Samart I-Mobile

Upgrade to BUY; strong FY13 recovery

Samart I-Mobile Plc (SIM)

Investment thesis

Following the 4Q12 preview meeting, our attitude toward SIM's 4Q12-FY13 earnings prospects has switched from negative to positive. We are now much more optimistic about the scope for a strong FY13 handset business recovery. There is also potential for FY13-14 earnings upside from a turnaround at its MVNO in 4Q13 and a possible procurement deal for the govt's Tablet scheme in 1H13. We have upgraded our FY13 profit forecast by 302% and lifted our YE13 target price to Bt3. Our rating switches from SELL to BUY.

Robust 4Q12 earnings expected

We estimate an Bt80m net profit for 4Q12, up 128% QoQ and a turnaround from a Bt24m loss posted for 4Q11. Excluding FX and other extra items, core earnings would be Bt67m, up by 250% YoY and 199% QoQ. The expected robust 4Q12 numbers are attributable to a jump in the sales prices of i-mobile handsets and fatter QoQ GM. The average i-mobile sales price was Bt2,127 in 4Q12, up by 93% YoY and 39% QoQ. GM rose from 18% in 3Q12 to 22% in 4Q12, due to a bigger proportion of smart phones in the sales mix. SIM sold 950K i-mobile handset units during the quarter; we estimate that 35% were smart phones (333K, up 93% QoQ).

Momentum should be sustained through 1Q13

We forecast a 1Q13 net profit of Bt140m, up by 470% YoY and 75% QoQ, led by smart phone sales volume (to 600K, up 80% QoQ), further GM expansion (to 23%) and a higher average sales price (to Bt2,500, up by 109% YoY and 18% QoQ). Management claims that revenue in Jan exceeded Bt900m; monthly income averaged Bt600m in FY12. Based on the guidance, we expect a Bt50m net profit just for January.

FY13 earnings recovery; FY12-13 earnings upgrade

The firm targets a mean FY13 i-mobile sales price of Bt2,700 (up 79% YoY) and sales volume of 3.3m units, of which 70% will be smart phones. SIM guides for GM of 21% this year, due to a higher proportion of smart phones in the sales mix. Due to an expanded expectation for 4Q12 earnings, we have upgraded our FY12 estimate by 50% to Bt162m. Also, we have upped our FY13 net profit forecast by 302% to Bt490m to factor in: 1) a 57% rise in the mean handset sales price to Bt2,624 and 2) a higher GM assumption of 20.5% (from 15%). Hence, our YE13 target price rises from Bt0.43 to Bt3 (an FY13 PER of 26x).

Earnings upside—MVNO turnaround and the Tablet project

The firm will bid to supply the govt's Bt4.5bn Tablet scheme in 1H13. The procurement will provide 1.6m tablets to students and will be allocated between 5-6 bidders (SIM expects to be allotted 0.4m tablets). Revenue would be recognized in 2H13. Moreover, its MVNO business is likely to break even by YE13 at 500K MVNO subs and post black ink for FY14.