Home arr_bc Stocks arr_bc Details

stocks research

28 Jul 2009 09:18 AM
SIM - BT 1.70 - Sell
Moderate recovery to a Bt48mn net profit expected for 2Q09

Research by: Solaya Na Songkhla


Moderate recovery to a Bt48mn net profit expected for 2Q09

SELL rating maintained despite recovery potential in 2010

SIM’s performance is likely to bottom out in 2009 and see a recovery along with the economy in 2010 from the benefits from 3G handset demand. However, this stock still looks expensive, trading 63% above our new fair value of Bt1.08/share (revised from Bt0.80/share previously by changing the base to a 2010 PER of 18x). Therefore, our SELL rating is reiterated.

2Q09 result to turn positive to a Bt48mn net profit

We expect the SIM normalised result to turn from a -Bt70mn normalised loss in the previous quarter to a -Bt43mn normalised profit (Bt48mn net profit after gain from investment) for 2Q09 mainly due to:

  1. cost cutting (8% qoq),

  2. a 75% smaller stock (handset) clearance sale than in the previous quarter, which resulted in a 2.1) 7% recovery in average handset price to around Bt2,600/unit and 2.2) a recovering gross margin from 9.9% in the previous quarter to 13.6%,

  3. the continuing growth in content revenue (3% qoq) and

  4. an expected overall sales rise of 4% qoq to Bt2,158mn with 732,000 unit sales, comprised of 631,000 units in the domestic market and 101,000 units overseas.

Further improvement coming in 2H09, with a still soft normalised earnings of Bt83mn

We expect the SIM performance to recover further in 2H09 with handset orders from Indonesia and the Indian markets in hand, but still relatively weak when compared to 2007. With a 1Q09 loss from stock clearance and only a moderate recovery in the 2Q-4Q09 periods, we expect the SIM normalised earnings to fall by 61% from last year to only Bt83mn or Bt0.02/share (and Bt163mn after including 1Q09 extra gains). This is downgraded by 49% from our previous forecast by 1) cutting handset sales volume by 18% to 3.3mn units and 2) by trimming our gross margin assumption by 90 basis points to 13%.

Earnings recovery of Bt247mn should come through in 2010

We expect handset sales, in both domestic and overseas markets, to recover along with the economy in 2010. SIM earnings are expected to recover to Bt247mn or Bt0.06/share. The upcoming 3G services will be positive for handset sales industry, as a 3G handset is needed in order to use 3G services. However, we also expect cheap 3G handsets to come in from China after China issues its own 3G licences this year.

Earnings summary

 

2006

2007

2008

2009F

2010F

Sales

24,347

15,227

11,151

9,068

9,964

EBITDA (Btmn)

875

769

527

391

523

Normalised Profit

434

393

214

83

247

Net Profit

488

321

114

163

247

Normalised EPS (Bt)

0.10

0.09

0.05

0.02

0.06

EPS (Bt)

0.11

0.07

0.03

0.04

0.06

PER (x)

15.0

22.8

64.1

44.9

29.6

EV/EBITDA (x)

1.6

1.7

5.3

18.6

13.6

CF/share (Bt)

0.0

0.1

(0.2)

0.4

0.1

BV per shr (Bt)

0.6

0.6

0.5

0.5

0.6

Price/BV (x)

3.1

3.0

3.2

3.2

3.1

DPS (Bt)

0.062

0.062

0.045

0.035

0.045

Dividend yield (%)

3.6%

3.6%

2.6%

2.1%

2.6%

Gearing

0.0

net cash

0.6

net cash

net cash

ROA (%)

8.4%

4.8%

1.8%

2.7%

4.4%

ROE (%)

21.6%

13.3%

4.9%

7.2%

10.6%

Source : Company reports and KELIVE Research estimates

2Q09 result forecast (Bt,mn)

 

2Q09F

1Q09

QoQ

2Q08

YoY

1H09F

1H08

YoY

Sales

2,158

2,081

3.7%

2,346

-8.0%

4,239

5,459

-22.3%

Other Income

55

53

4.0%

33

65.2%

108

59

81.9%

COGs

1,824

1,831

-0.4%

1,883

-3.1%

3,655

4,406

-17.0%

Depreciation

42

43

-1.2%

42

0.1%

85

83

1.3%

Gross profits

293

207

41.3%

422

-30.6%

500

970

-48.5%

Gross margin (%)

13.6%

9.9%

-

18.0%

-

11.8%

17.8%

-

SG&A

272

296

-8.2%

380

-28.4%

568

756

-24.8%

SG&A/Sale (%)

12.6%

14.2%

 

16.2%

 

13.4%

13.8%

 

EBITDA

118

6

1808.2%

115

1.9%

124

355

-65.1%

Normalised profit

43

(70)

N.A.

62

-29.6%

(26)

200

-113.1%

Extra gain (loss)

5

80

-93.7%

(15)

N.A.

85

(23)

-475%

Net profit

48

10

373.3%

47

3.1%

59

178

-67.1%

Normalised EPS (Bt)

0.01

(0.02)

N.A.

0.01

-29.6%

(0.01)

0.05

-113.1%

EPS (Bt)

0.01

0.00

373.3%

0.01

3.1%

0.01

0.04

-67.1%

Source: Company reports and KELIVE Research estimates

Profit (Btmn) and gross margin (%)

Source: Company reports and KELIVE Research estimates.

Handset sales (units)

Source: Company reports and KELIVE Research estimates.

Average sales price (Bt/unit)

Source: Company reports and KELIVE Research estimates.

Due to different characteristics, objectives and strategies of institutional and retail investors, the research reports of Kim Eng Research and KELIVE Research may differ in either recommendation or target price, or both. KELIVE Research is intended for retail investors (http://kelive.kimeng.co.th  )while Kim Eng Research is intended only for institutional investors based outside Thailand ( www.research.kimeng.com ). It is therefore important for each investor to read and understand the assumptions and basis of recommendation of each report.

This research report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation, or particular needs of any specific person who may receive this report. The information contained herein is provided on the basis of information received or provided to us, but its completeness and accuracy are not guaranteed. Opinions expressed in this report are subject to change without notice, and no part of this publication is to be construed as an offer, or solicitation of an offer, to buy or sell any securities or financial instruments whether referred to therein or otherwise. We do not accept any liability whatsoever whether direct or indirect that may arise from the use of information contained in this report, or a reliance on our opinion expressed in this report. Kim Eng Securities (Thailand) Public Company Limited, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.