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Samart I-Mobile

Still buoyed by smartphones sales BUY

Samart I-Mobile Plc

Perceived risk is largely to sentiment: fundamentals are sound. The stock has

fallen 20% in the past two days on news that the National Telecommunications

Commission (NBTC) is looking at limiting foreign holdings in ICT companies - and 24%

of SIM is held by AXIATA Group Berhad, in Malaysia. However, any dilution of AXIATA's

holdings would have no effect whatsoever on its sound fundamentals and thus a share

price fall opens the way to add SIM as a long-term investment.

DTV smartphone a bonus for 2Q14F. SIM designed and then launched an innovative

new mobile device in May, a digital TV smartphone that allows the user to watch

digital TV without either WiFi or access to a data network. Timing is excellent, with the

World Cup likely to lead to a jump in sales of this device - and thus earnings.

Set-top box sales to add ~5% to net profit. Parent SAMART has gained entry into

the digital TV business via producing set-top boxes to allow households to receive

digital TV signals. It targets 2014 sales of 1.5-2.0mn units from total population of

25mn households. SIM is expected to sell 30% of those units, or 500K, which would add

Bt500mn in revenue and at least Bt25mn to net profit in 2014. Sales will be expanded

by the discount coupon to be provided by the NBTC, expected in August 2014.

1Q14 recap and 2Q14 forecast. 1Q14 net profit was Bt196mn (EPS Bt0.04). Gross

margin fell to 19percent from 25% in 1Q13 and 24% in 4Q13. On the plus side, SG&A/sales fell

to 12% in 1Q14 from 15% in 1Q13 and 20% in 4Q13. Operating margin was 7%, down

from 10% in 1Q13 but up from 4% in 4Q13. This was due to delays in new models in

4Q13 and 1Q14 and also the expenses of bundling of 3GX SIM cards. In 2Q14F, we

expect earnings to return to strong growth to ~Bt266mn, up 4%YoY and 35%QoQ, given

momentum by the introduction of ten new models in 1Q14.

MVNO and content provider businesses. MVNO revenue was Bt71mn in 1Q14,

+134%YoY,-1.4%QoQ. Average revenue per user (ARPU) fell to below Bt100 per number,

as a larger proportion of users switched to prepaid. SIM targets breakeven for this

business in 2014 after the Bt100mn loss in 2013. The content provider arena was

disappointing in 1Q14 with revenue of Bt204mn, down 9%YoY, and 15%QoQ. However,

the World Cup will provide some lift this business in 2Q14 and 3Q14.

Recommend Buy, target price Bt4.50. SIM continues to enjoy overwhelming

acceptance of its own brand of smartphones. ASP is expected to move up with model

features, pushing up sales and profit. We expect it to make a much better showing in

2Q14, with a gross margin of 23-25% on its own brand, much better than the 13-15%

on international brands. We value SIM at Bt4.5 per share via DCF, noting that the price

is equivalent to a 2015 PER of 15x. We still BUY.


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