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Samart I-Mobile

2Q14F: New high for quarterly earnings BUY

Samart I-Mobile Plc (SAMART)

- 2Q14F looking good with revised net profit expectation of Bt282mn

- Digital TV smartphone gives bigger boost than expected, digital TV coupon to lift sales and earnings in 4Q14 and 2015

- MVNO to star from 2015


- BUY with huge upside to target price of Bt4.50 (15x 2015 PER)

DTV smartphone a bonus for 2Q14F. 2Q14 net profit is expected to be a new high of Bt282mn, +10%YoY and +43%QoQ (up from previous forecast of Bt266mn on 13 June). SIM will announce 2Q14 results on August 9. Total cell phone sales volume is estimated at 1.23mn units, up from 1.08 units in 1Q14, and 1.15mn units in 2Q13, but the proportion of smartphones reached 70%, up from 67% in 1Q14 and 37% in 2Q13. Sales price per unit is estimated at Bt2,966, up from Bt2,937 in 1Q14 and Bt2,413. Behind this is the introduction of 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 was excellent, with football's World Cup pushing sales up sharply. Digital TV uses a special chip, the DVB-T2 system, which can be used in 35 countries. SIM now plans to go abroad, beginning in Myanmar.

Set-top box sales to add net profit in 2015. Parent SAMART produces set-top boxes to receive digital TV signals. It is ready to launch this when the government coupons are issued to Thailand's 25mn households in September 2014, priced at an average of Bt850. SAMART targets 2014 sales of 1.0mn units, less than the earlier hoped-for 1.5-2.0mn units because of the late launch. However, sales will simply be moved to 2015, when it expects to take ~20% of the market. SIM expects to sell 30% of SAMART's units.

MVNO. Although this business will be quiet with a small loss in 2014 because it was not able to sign the contract with TOT because of a board reshuffle, management still expects to boost subscribers to 1.5mn in 2015 from 0.5mn now. SIM expects this business to surge in 2015.

SAMART now holds 74.11% in SIM from 51%. The purchase by SAMART from AXIATA has no affect whatsoever on fundamentals. In fact, it will allow an increase in SIM's free float to 30percent from 15.27%.

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. 2Q14 is expected to be good, with a gross margin of 24% on its own brand, much better than the 13-15% on international brands. We are more positive on SIM after talking to Mr. Watchai Vilailack. In his view, SIM will be one of SAMART's best subsidiaries in 2014. He also expects the MVNO business under SIM to really take off in 2015 after TOT gets a new board and signs the official contract for the MVNO business. 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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