Following the preview meeting, we remain confident about SAMART’s 1Q14 core earnings profile, led by strong core profit growth at SIM, SAMTEL and among non-listed subsidiaries (despite the consumption slowdown and political uncertainty). We have lifted our FY14-17 net profit forecast to factor in digital set-top box sales and raised our YE14 target price 5% to Bt30.5. Our BUY rating stands, premised on a core profit jump in 2H14 and scope for upside from the acquisition of power and utilities plants, 2H14-FY15.
Strong core earnings expected for 1Q14
We estimate a Bt385m bottom-line for 1Q14, up by 9% YoY and 6% QoQ. Excluding a Bt5m FX gain in 1Q14 and other extra items in 1Q13 and 4Q13, core profit would be Bt380m, up 24% YoY but down 7% QoQ. The expected solid YoY core profit rise is due to lower SAMTEL interest expenses, lower income tax expenses for SIM and greater other income and stronger profits among non-listed subsidiaries. The assumed QoQ core earnings decline is attributable to a drop at SAMTEL related to political uncertainty.
We estimate SIM’s 1Q14 core profit at Bt193m, up by 16% YoY and 2% QoQ, led by lower income tax expenses and higher other income. Its smart phone sales volume is assumed at 730k, up by 91% YoY and 30% QoQ, and its mean sales price is estimated at Bt2,936, up by 15% YoY and 11% QoQ. We model that GM declined to 19%, from 25.1% in 1Q13 and 24.1% in 4Q13, due to price-cutting to clear inventory.
SAMTEL’s 1Q14 core profit is estimated at Bt202m, up 39% YoY (but down 4% QoQ), thanks to lower interest expenses. Its revenue is assumed to have dropped by 3% YoY and 12% QoQ—planned tenders for state projects have been delayed in the prevailing dysfunctional political environment. The aggregate earnings of non-listed subsidiaries should post a 47% YoY jump, led by CATS (profit up 61% YoY on more flights), Kampot power plant (up 15% YoY) and Vision and Security (a turnaround from a Bt2m loss to Bt10m profit).
Digital set-top box sales factored in—Bt1.50/share
We assume that SAMART will take a 20% share of nationwide sales of set-top boxes and antennae (8m units of a total of 40m TV set-top boxes) within three years and conservatively model for only 1m unit sales in FY14 (management’s FY14 target range is 1.5-2m units). Assuming a NM of 10% and a mean sales price of Bt1,000/set, we have upgraded our FY14 top-line projection by 4% to Bt25.9bn and our FY14 net profit forecast by 6% to Bt1.71bn. Our YE14 target price rises 5% to Bt30.50.