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Samart I-Mobile

Core profit exceeded our model

Samart I-Mobile Plc

Core profit overshot our estimate

SIM posted a Bt152m net profit for 4Q13, up 79% YoY but down 31% QoQ. Stripping out extra items—a Bt22m FX gain and net extra expenses of Bt59m (bad debt provisions and a loss on an asset sale)—core profit would be Bt189m, up 62% YoY but down 10% QoQ. The reported net profit was in line with our estimate. Core earnings exceeded our number by 32%, thanks to fatter GM than assumed and recognition of a tax credit (we had assumed tax expenses in 4Q13). GM was 24.1%, significantly above our estimate of 15%.

Result highlights

The YoY core profit jump was attributable to heavier smart phone sales volume and a higher mean sales price. The modest QoQ decline was due to a surge in SG&A expenses. Blended GM was 24.1%, up from 21.6% in 4Q12 and 22.8% in 3Q13. The firm sold 1m units of handsets in 4Q13, of which 558k were smart phones, up by 64% YoY and 37% QoQ. The average sales price was Bt2,629, up 18% YoY (led by a higher proportion of smart phones in the sales mix) but down 9% QoQ (as a result of price-cutting to clear inventory).

Handset sales were Bt2.2bn in 4Q13, up 12% YoY. Content revenue was Bt237m, down 11% YoY. Revenue from the MVNO business was Bt70m, up by 218% YoY and 43% QoQ. The gross profit of the handset business was Bt607m, up 41% YoY. The GP of the content unit was Bt39m, down 40% YoY. The GP of the MVNO unit was B13m, a YoY turnaround from a Bt3m gross loss in 4Q12. Domestic handset GM jumped to 27.6percent from 21.9% in 4Q12. The GM of the content business dropped to 16.5% in 4Q13 from 24.5% in 4Q12. MVNO subscribership was 400k at YE13, up 14% QoQ.

Outlook

We preliminarily estimate a Bt200m core profit for 1Q14, up by 20% YoY and 6% QoQ, led by greater smart phone sales volume and a higher mean price. Smart phone sales volume of 600k units is expected for the quarter (up by 57% YoY and 8% QoQ). GM should be about 25%, supported by a higher average sales price (Bt2,800, up by 10% YoY and 7% QoQ). SIM will launch nine i-mobile smart phone models in 1Q14. Despite concerns that the consumption slowdown might squeeze demand for new handsets in 1H14, we forecast a good core profit for 1Q14, premised on greater smart phone sales in the provinces in tandem with the nationwide rollout of 3G networks.

What's changed?

Our FY14 core earnings projection stands unchanged.

Recommendation

We rate SIM a BUY, premised on a solid FY14 earnings profile and a cheap valuation.




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