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Samart Telcoms

APPS project progress

Samart Telcoms Plc (SAMTEL)

Investment thesis

The Department of Civil Aviation approved the APPS fee on Nov 19, so we expect further positive developments on this front. The project could add 7% to our annual net profit projection and Bt1/share to our YE13 PEG-derived target price. Furthermore, the new TOT board held its first meeting on Nov 15, where one of its priorities is to push forward with the TOT's 3G Phase 2 (also a priority of the ICT Minister, Grp Capt Anudith Nakornthap). Our BUY rating stands, premised on: 1) upside from big projects in FY13 and 2) a cheap valuation—11.7x FY13 PER.

The Department of Civil Aviation approved APPS fee

Mr Chatchart Sithipan, Minister of Transport, said the Department of Civil Aviation on Nov 19 approved an advanced passenger processing service (APPS) fee for Airports of Thailand (AOT) not exceeding Bt50 per passenger per flight. AOT will determine a final fee within two weeks. The APPS fee will be included in the passenger fee, starting July 2013. The next step is to open the contract to tender. The APPS project will check the data of travelers in advance of their arrival/departure and flag warnings of suspected persons.

SAMTEL's revenue portion—Bt12 per passenger per flight

The Bt50 APPS fee will be divvied up as follows: Bt32 to two system installation providers (Bt12 to SAMTEL and Bt20 to SITA), Bt5 to the Immigration Bureau, Bt4 to AOT, Bt2 to the Treasury Department, Bt1 to the airlines and the remaining Bt6 to tax and others.

Positive news for SAMTEL

We expect AOT to open the tender for the APPS project in Jan 2013. It will take about one month to draft the Terms of Reference and prepare the tender. There are two potential bidders for the project: 1) the SAMTEL consortium (SAMTEL and SITA) and 2) the CDG consortium (CDG and Airlink of the US). We believe that SAMTEL is well placed to win the APPS project.

Upside of 7% to annual profit and Bt1/share to our target price

Following software installation, revenue will commence in 3Q13. Of the total Bt13bn project value, we assume that Bt6bn will go to SAMTEL over the 10-year lifespan of the contract. We estimate Bt257m in 2H13, Bt533m in FY14 and Bt551m in FY15 revenue. Applying a 12% net margin for this project, it would boost SAMTEL’s net profit by 7% and our YE13 target price by 4% to Bt22.

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