Underperform (17E TP Bt28.80)
Advanced Information Technology Underperform (17E TP Bt28.80)
Company Update
Close Bt28.00
ICT
Earnings upgrade/Earnings downgrade/Overview unchanged
March 3, 2017
Backlog resumes Price Performance (%)
Source: SET Smart
FY17
FY18
Consensus EPS (Bt)
2.290
2.670
KT ZMICO vs. consensus Share data
4.8%
0.0%
Reuters / Bloomberg
AIT.BK/AIT TB
Paid‐up Shares (m)
206.32
Par (Bt)
5.00
Market cap (Bt bn / US$ m)
6.00/165.00
Foreign limit / actual (%)
25.00/4.06
52 week High / Low (Bt)
34.00/22.90
Avg. daily T/O (shares 000) NVDR (%)
402.00 4.77
Estimated free float (%)
71.79
Beta
0.54
URL
www.ait.co.th
CGR
Anti‐corruption
n.a.
Waraporn Wiboonkanarak Analyst, no. 2482 [email protected] 66 (0) 2624‐6273
Upgrade to UNDERPERFORM AIT has suffered a core profit decline for three straight years due to the slow momentum of government projects. With its backlog improvement YTD together with a higher flow of project bidding coming in, we revise up our 2017E earnings estimate by 4%. This leads to the new 2017E target price of Bt28.80, pegged with PER 12x. With limited upside to our TP, we lift our rating one notch to UNDERPERFORM (from SELL previously), with an attractive yield of 5.4% for the period (goes XD on April 19) as the near‐term catalyst. Higher flow of projects up for bidding AIT revealed there are more projects open for bidding since the beginning of the year. As a result, the company conservatively set its revenue target at Bt5bn this year, implying 15%YoY growth. We see its current backlog acceleration confirming this trend. At the end of February, AIT had backlog of Bt2.5mn (+27% from yearend). There is an additional Bt1.1bn waiting for orders, including two contracts with a combined value of Bt853mn that are going to be signed with TOT for supplying equipment worth Bt15bn for the national broadband network (Figure 2). We revise up our revenue forecast by 6% this year to Bt5.4bn (+24%YoY) to incorporate the higher‐than‐expected YE backlog and TOT’s national broadband network. However, the 2018E revenue forecast is revised down by 8% to Bt5.3bn, flat YoY but increasing 18%YoY if excluding hardware sales to TOT in 2017E. Earnings upgrade for 2017E AIT admitted that the margin for TOT’s national broadband network is slim as it is purely low‐margin hardware sales. This leads us to downgrade its GPM in 2017 to 22.9% from 23.3% earlier. Nevertheless, with top line expansion, its bottom line edges up by 5% to Bt494mn. Our 2018E NP forecast is insignificantly adjusted as lower sales will be offset by margin improvement. Strategy shift for long‐term growth In preparation for technological changes as part of the digital transformation trend, AIT will capitalize on its expertise in the six new “pillars” in a bid to build up its service revenue base. These include private cloud builder and implementer, data analytics, IT security, business software and Internet of Things. For new business areas such as data analytics and business software, the partnership model will be applied to shorten its learning curve. We do not expect to see a significant contribution from these new businesses this year. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) Norm EPS (Bt) Norm EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) P/BV (x) Dividend yield (%) ROE (%) Net gearing (%)
2015 5,156 533 2.58 2.40 ‐24.8% 2.05 13.87 2015 11.67 7.51 2.02 7.3% 17.9% 0.5%
2016 4,358 429 2.08 2.08 ‐13.3% 2.00 13.98 2016 11.87 6.80 1.77 8.1% 14.9% ‐9.4%
2017E 5,387 494 2.40 2.40 15.1% 2.11 14.37 2017E 11.69 7.44 1.95 7.5% 16.9% 2.7%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2018E 5,337 552 2.67 2.67 11.6% 2.14 14.94 2018E 10.47 5.98 1.87 7.6% 18.2% ‐20.9%
2019E 6,059 611 2.96 2.96 10.8% 2.37 15.76 2019E 9.45 6.47 1.78 8.5% 19.3% 9.0%
Insight into 4Q16 and 2016 results 4Q16 results below view AIT reported a net profit of Bt111mn (EPS: 0.54) in 4Q16, down 6%YoY. This was below our forecast by 6%, mainly due to revenue falling short of our estimate by 26%. Its revenue shrank 35%YoY and 19%QoQ to Bt914mn as a result of slow private investment with insubstantial public ICT spending. Its net profit fell only 5%YoY thanks to a higher GPM and lower SG&A expenses. Its GPM hit 26.3% vs. 22.1% in 4Q15 while the SG&A to revenue ratio dropped to 12.8% from 13.4% thanks to a reversal of an allowance for doubtful accounts receivable of Bt22.7mn in 4Q16. Excluding this, its SG&A to revenue reached 15.3%, mainly from higher customer retention costs as well as promotional activities for tapping new customers. Core profit has fallen for three straight years The stumble of public ICT spending caused AIT to deliver negative earnings growth of 19%YoY to Bt429mn in 2016. Its revenue decreased by 15%YoY to Bt4.4bn, mainly from telecom sales and services. Its GPM improved to 24.5% from 23.7% the previous year thanks to no sizable projects and a higher revenue proportion from the private sector as well as renewal of leasing contracts with a better margin. Its SG&A expenses declined at a similar rate to sales but the revenue deterioration kept its SG&A to sales at 12.8%, nearly flat YoY. Its shared loss from the JV expanded to Bt19.2mn from Bt8.5mn in 2015, mainly from its JV with LOXLEY. 5% yield for 2H16 performance Its financial position remains strong with a net cash position. AIT announced to pay a DPS of Bt1.50 for 2H16, representing a 5.4% yield for the period. Its XD sign will be posted on April 19, with the payment to be made on May 9, 2017. Despite the unfavorable results, AIT will pay a total DPS of Bt2.00 for 2016, implying a 96% payout ratio, up from 79% in 2015. Figure 1: Earnings review Profit and Loss Statement (Btmn) Fiscal Year‐Ended Dec. 4Q15 Revenue 1,407 Gross profit 311 SG&A 189 EBITDA 181 Interest expense 0 Income tax 33 Net profit (loss) 117 Normalized profit (loss) 117 Reported EPS (Bt) 0.57 Gross margin 22.1% EBITDA margin 12.9% Net margin 8.3% Current ratio (x) 2.54 Interest coverage (x) 924.12 Debt to equity (x) 0.63 BVPS 13.87 ROE 17.8%
1Q16 1,113 258 127 177 0 28 108 108 0.52 23.2% 15.9% 9.7% 2.47 322.75 0.67 14.40 16.3%
2Q16 1,203 285 149 181 0 32 108 108 0.53 23.7% 15.1% 9.0% 2.58 356.25 0.62 13.42 15.7%
3Q16 1,127 284 165 174 0 29 102 102 0.49 25.2% 15.4% 9.1% 2.75 367.03 0.56 13.42 15.3%
4Q16 915 241 117 181 0 32 111 111 0.54 26.3% 19.8% 12.1% 2.82 447.12 0.54 13.98 15.1%
%QoQ ‐18.8% ‐15.0% ‐29.2% 4.2% ‐10.3% 9.7% 8.7% 8.7% 8.7%
4.2%
%YoY ‐35.0% ‐22.4% ‐38.2% 0.0% 108.1% ‐2.9% ‐5.1% ‐5.1% ‐5.1%
2015 5,156 1,220 (665) 771 5 134 533 495 2.58 23.7% 15.0% 10.3% 2.54 124.74 0.63 0.8% 13.87 17.9%
2016 4,358 1,067 (558) 710 2 121 429 429 2.08 24.5% 16.3% 9.9% 2.67 369.02 0.56 13.98 14.9%
Source: Bloomberg, KT Zmico Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
%YoY ‐15.5% ‐12.5% ‐16.2% ‐7.9% ‐69.5% ‐10.1% ‐19.4% ‐13.3% ‐19.4%
0.8%
Figure 2: Results of TOT’s bidding for National Broadband Network Categories Winners 1. Optical Fiber Cable ‐ARSS 12 core ‐ARSS 24 core ‐ADSS Armoured 12 core ‐ADSS 24 core ‐Dropwire Optic 2. ODN ‐Aerial Outdoor Splitter ‐Aeiral Straight Joint Course ‐Fiber Distribution Frame (FDF) 3.Optical Line Terminal, ONU, Enclosure and Rack 4. Switching System 5. Wireless Access Point and Wireless Controller
Price (Btmn)
Reserve Price (Btmn)
Diff
The Consortium of B&K Fuyuan Business Thai Fiber Optic JV Thai Fiber Optic JV None
1,468 418 5 2
1,583 442 4 2
‐7.3% ‐5.4% 5.3% 5.2%
Lee Kim Trading ILINK Global Mesh AIT AIT SVOA
198 39 2 684 169 239
244 63 3 1,395 286 251
‐18.9% ‐38.1% ‐25.6% ‐51.0% ‐40.9% ‐4.8%
Source: Bloomberg, KT Zmico Research Figure 3: Earnings revision Year ended Dec Total Revenue (Btmn) EBITDA (Btmn) Pre‐tax profit (Btmn) Core profit (Btm) Net profit (Btmn) % growth EPS (Bt) EPS growth (%) Gross margin (%) SG&A exp to sales (%)
Previous 5,063 778 592 473 473 8.5% 2.29 8.5% 23.3% 12.0%
2017E New 5,387 787 618 494 494 15.1% 2.40 15.1% 22.9% 12.4%
%chg 6.4% 1.2% 4.4% 4.5% 4.5% 6.6% 4.6% 6.6% ‐0.4% 0.4%
Previous 5,815 880 690 552 552 16.6% 2.67 16.6% 23.4% 12.2%
2018E New 5,337 858 686 552 552 11.6% 2.67 11.6% 24.3% 12.4%
%chg ‐8.2% ‐2.6% ‐0.6% ‐0.1% ‐0.1% ‐5.0% 0.1% ‐5.0% 0.9% 0.2%
Source: Bloomberg, KT Zmico Research
Figure 4: PER and PBV band
PER (x)
35.0
PBV (x) 6.0
30.0
5.0
25.0
4.0
+3 S.D.
20.0
+2 S.D.
15.0
+1 S.D.
3.0 2.0
+2 S.D. +1 S.D. Average
10.0 ‐1 S.D.
0.0
‐1 S.D. Jul‐03 Mar‐04 Oct‐04 Jun‐05 Jan‐06 Aug‐06 Apr‐07 Nov‐07 Jul‐08 Feb‐09 Sep‐09 May‐10 Dec‐10 Aug‐11 Mar‐12 Oct‐12 Jun‐13 Jan‐14 Aug‐14 Apr‐15 Nov‐15 Jul‐16 Feb‐17
0.0
1.0
Average
Jul‐03 Mar‐04 Oct‐04 Jun‐05 Jan‐06 Aug‐06 Apr‐07 Nov‐07 Jul‐08 Feb‐09 Sep‐09 May‐10 Dec‐10 Aug‐11 Mar‐12 Oct‐12 Jun‐13 Jan‐14 Aug‐14 Apr‐15 Nov‐15 Jul‐16 Feb‐17
5.0
Source: Bloomberg, KT Zmico Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
Financial Summary PROFIT & LOSS (Btm)
2015 5,156 (3,936) 1,220 (665) 771 (138) 633 (5) 78 619 134 10 533 2.58 2.58 495 2.40 2.05
2016 4,358 (3,291) 1,067 (558) 710 (139) 571 (2) 61 550 121 0 429 2.08 2.08 429 2.08 2.00
2017E 5,387 (4,152) 1,235 (668) 787 (144) 643 (8) 75 618 124 0 494 2.40 2.40 494 2.40 2.11
2018E 5,337 (4,041) 1,295 (662) 858 (149) 708 (7) 75 686 134 0 552 2.67 2.67 552 2.67 2.14
2019E 6,059 (4,608) 1,450 (751) 938 (154) 784 (6) 85 764 153 0 611 2.96 2.96 611 2.96 2.37
BALANCE SHEET (Btm) Cash and equivalents Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Minority interests Shareholder equity Total liab. & shareholder equity
2015 1,292 766 126 2,489 4,673 74 105 1,810 0 2,862 4,673
2016 1,874 702 124 1,812 4,512 73 58 1,628 0 2,884 4,512
2017E 1,682 887 126 2,032 4,727 51 9 1,761 0 2,966 4,727
2018E 2,119 756 123 1,558 4,556 9 0 1,474 0 3,082 4,556
2019E 1,623 1,153 115 2,278 5,170 0 0 1,918 0 3,252 5,170
CASH FLOW (Btm) Net income Depreciation & amortization Change in working capital FX, non‐cash adjustment & others Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt)
2015 657 153 241 (87) 963 (31) (699) (730) 1 0 (340) 86 (254) (21) 932 4.52
2016 550 142 89 (70) 710 (38) 373 334 (52) 0 (413) 3 (462) 582 672 3.26
2017E 494 144 (315) 0 323 (146) 112 (34) (51) 0 (413) (17) (481) (192) 177 0.86
2018E 552 149 251 0 952 (146) 115 (32) (43) 0 (435) (6) (483) 437 805 3.90
2019E 611 154 (708) 0 57 (146) 40 (106) (9) 0 (441) 3 (447) (496) ‐89 ‐0.43
PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2015 (21.2) (19.4) (19.1) 23.7 15.0 10.8 10.3 9.6 21.7
2016 (15.5) (7.9) (19.4) 24.5 16.3 11.7 9.9 9.9 21.9
2017E 23.6 10.9 15.1 22.9 14.6 10.5 9.2 9.2 20.0
2018E (0.9) 8.9 11.6 24.3 16.1 11.9 10.3 10.3 19.6
2019E 13.5 9.4 10.8 23.9 15.5 11.5 10.1 10.1 20.0
1,810 0.60 14 0.00 124.74
1,628 0.54 (271) (0.09) 369.02
1,761 0.58 79 0.03 81.35
1,474 0.47 (645) (0.21) 100.90
1,918 0.58 294 0.09 130.65
Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt)
FINANCIAL QUALITY Total debt (Btm) Total debt to capital employed (x) Net debt (Cash) (Btm) Net debt to equity (x) Interest coverage (x)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, M‐CHAI, POMPUI, TFD.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
KT ZMICO Securities Company Limited Head Office
WWW.KTZMICO.COM
8th, 15th‐17th,19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok, Thailand 10500 Telephone: (66‐2) 695‐5000 Fax: (66‐2) 695‐5173 KT ZMICO Connect 662 695 5555
Central World Branch
Amarin Branch
22nd Floor, Amarin Building, 496‐502 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 018‐6200 Fax: (66‐2) 018‐6298, (66‐2) 018‐6299
8th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 626‐6000 Fax: (66‐2) 626‐6111
Phaholyothin Branch
Sindhorn Branch
Viphavadee Branch
2nd Floor, Sindhorn Tower 1, 130‐132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 627‐3550 Fax: (66‐2) 627‐3582, 627‐3600
G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee‐Rangsit Road, Ladyao, Jatujak, Bangkok 10900 Telephone: (66‐2) 013‐8600 Fax: (66‐2) 618‐8569
BangKhae Branch
Chiang Mai Branch
Pak Chong Branch
999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan, Bangkok 10330 Telephone: (66‐2) 264‐5888 Fax: (66‐2) 264 5899
1291/1, Shinnawatra Tower II, 3rd Floor, Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66‐2) 686‐1500 Fax: (66‐2) 686‐1666
Ploenchit Branch
518 The Mall Group Building Bangkhae Branch, 6th Floor, Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Telephone: (66‐2) 454‐9979 Fax: (66‐2) 454‐9970
422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai 50100 Telephone: (053) 270‐072 Fax: (053) 272‐618
173 175, Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Telephone: (044) 279‐511 Fax: (044) 279‐574
Korat Branch
Khon Kaen Branch
Chonburi Branch
624/9 Changphuek Road, T.Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171
5th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000 Telephone: (043) 389‐171‐193 Fax: (043) 389‐209
4th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287‐635 Fax: (038) 287‐637
Pattaya Branch
Chachoengsao Branch
Hat Yai Branch
Easy Point 2, 392/65 Moo.9, T.Nong Prue, A. Bang Lamung, Chonburi 20260 Telephone: (038) 420‐965 Fax: (038) 420‐968
108/34‐36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao 24000 Telephone: (038) 813‐088 Fax: (038) 813‐099
200/301, 200/303 JULDIS HATYAI PLAZA Floor 3 , Niphat‐Uthit 3 Rd, Hatyai Songkhla 90110 Telephone: (074) 355530‐3 Fax: (074) 355534
Phuket Branch
22/61‐63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket 83000 Telephone: (076) 222‐811, (076) 222‐683 Fax: (076) 222‐861
Phitsanulok Branch
227/171 Borom Trilokkanat Road, Muang, Phitsanulok 65000 Telephone: 055‐219‐255 to 8 Fax: 055‐219‐259
Nakhon Pathom
Cyber Branch Ayutthaya
Cyber Branch @ North Nana
Cyber Branch Chiangrai
KrungThai Bank, Rojana Branch 253 Moo 5, Rojana Road, Phai Ling, Phra Nakhon Si Ayutthaya, Phra Nakhonsi Ayutthaya, 13000 Telephone: 035‐242‐477 Fax: 035‐242‐476
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd., Klong Toey Nua Subdistrict , Wattana District , Bangkok 10110 Telephone: 083‐490‐2871
River Hotel (Building 3rd),1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
KrungThai Bank, Hayaek Phokhun Mengrai Branch 116/19 Moo 19, Highway 110 Road, Rop Wiang, Mueang Chiang Rai, Chiang Rai, 57000 Telephone: 053‐715‐067 Fax: 053‐715‐068
Company Update
Close Bt28.00
ICT
Earnings upgrade/Earnings downgrade/Overview unchanged
March 3, 2017
Backlog resumes Price Performance (%)
Source: SET Smart
FY17
FY18
Consensus EPS (Bt)
2.290
2.670
KT ZMICO vs. consensus Share data
4.8%
0.0%
Reuters / Bloomberg
AIT.BK/AIT TB
Paid‐up Shares (m)
206.32
Par (Bt)
5.00
Market cap (Bt bn / US$ m)
6.00/165.00
Foreign limit / actual (%)
25.00/4.06
52 week High / Low (Bt)
34.00/22.90
Avg. daily T/O (shares 000) NVDR (%)
402.00 4.77
Estimated free float (%)
71.79
Beta
0.54
URL
www.ait.co.th
CGR
Anti‐corruption
n.a.
Waraporn Wiboonkanarak Analyst, no. 2482 [email protected] 66 (0) 2624‐6273
Upgrade to UNDERPERFORM AIT has suffered a core profit decline for three straight years due to the slow momentum of government projects. With its backlog improvement YTD together with a higher flow of project bidding coming in, we revise up our 2017E earnings estimate by 4%. This leads to the new 2017E target price of Bt28.80, pegged with PER 12x. With limited upside to our TP, we lift our rating one notch to UNDERPERFORM (from SELL previously), with an attractive yield of 5.4% for the period (goes XD on April 19) as the near‐term catalyst. Higher flow of projects up for bidding AIT revealed there are more projects open for bidding since the beginning of the year. As a result, the company conservatively set its revenue target at Bt5bn this year, implying 15%YoY growth. We see its current backlog acceleration confirming this trend. At the end of February, AIT had backlog of Bt2.5mn (+27% from yearend). There is an additional Bt1.1bn waiting for orders, including two contracts with a combined value of Bt853mn that are going to be signed with TOT for supplying equipment worth Bt15bn for the national broadband network (Figure 2). We revise up our revenue forecast by 6% this year to Bt5.4bn (+24%YoY) to incorporate the higher‐than‐expected YE backlog and TOT’s national broadband network. However, the 2018E revenue forecast is revised down by 8% to Bt5.3bn, flat YoY but increasing 18%YoY if excluding hardware sales to TOT in 2017E. Earnings upgrade for 2017E AIT admitted that the margin for TOT’s national broadband network is slim as it is purely low‐margin hardware sales. This leads us to downgrade its GPM in 2017 to 22.9% from 23.3% earlier. Nevertheless, with top line expansion, its bottom line edges up by 5% to Bt494mn. Our 2018E NP forecast is insignificantly adjusted as lower sales will be offset by margin improvement. Strategy shift for long‐term growth In preparation for technological changes as part of the digital transformation trend, AIT will capitalize on its expertise in the six new “pillars” in a bid to build up its service revenue base. These include private cloud builder and implementer, data analytics, IT security, business software and Internet of Things. For new business areas such as data analytics and business software, the partnership model will be applied to shorten its learning curve. We do not expect to see a significant contribution from these new businesses this year. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) Norm EPS (Bt) Norm EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) P/BV (x) Dividend yield (%) ROE (%) Net gearing (%)
2015 5,156 533 2.58 2.40 ‐24.8% 2.05 13.87 2015 11.67 7.51 2.02 7.3% 17.9% 0.5%
2016 4,358 429 2.08 2.08 ‐13.3% 2.00 13.98 2016 11.87 6.80 1.77 8.1% 14.9% ‐9.4%
2017E 5,387 494 2.40 2.40 15.1% 2.11 14.37 2017E 11.69 7.44 1.95 7.5% 16.9% 2.7%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2018E 5,337 552 2.67 2.67 11.6% 2.14 14.94 2018E 10.47 5.98 1.87 7.6% 18.2% ‐20.9%
2019E 6,059 611 2.96 2.96 10.8% 2.37 15.76 2019E 9.45 6.47 1.78 8.5% 19.3% 9.0%
Insight into 4Q16 and 2016 results 4Q16 results below view AIT reported a net profit of Bt111mn (EPS: 0.54) in 4Q16, down 6%YoY. This was below our forecast by 6%, mainly due to revenue falling short of our estimate by 26%. Its revenue shrank 35%YoY and 19%QoQ to Bt914mn as a result of slow private investment with insubstantial public ICT spending. Its net profit fell only 5%YoY thanks to a higher GPM and lower SG&A expenses. Its GPM hit 26.3% vs. 22.1% in 4Q15 while the SG&A to revenue ratio dropped to 12.8% from 13.4% thanks to a reversal of an allowance for doubtful accounts receivable of Bt22.7mn in 4Q16. Excluding this, its SG&A to revenue reached 15.3%, mainly from higher customer retention costs as well as promotional activities for tapping new customers. Core profit has fallen for three straight years The stumble of public ICT spending caused AIT to deliver negative earnings growth of 19%YoY to Bt429mn in 2016. Its revenue decreased by 15%YoY to Bt4.4bn, mainly from telecom sales and services. Its GPM improved to 24.5% from 23.7% the previous year thanks to no sizable projects and a higher revenue proportion from the private sector as well as renewal of leasing contracts with a better margin. Its SG&A expenses declined at a similar rate to sales but the revenue deterioration kept its SG&A to sales at 12.8%, nearly flat YoY. Its shared loss from the JV expanded to Bt19.2mn from Bt8.5mn in 2015, mainly from its JV with LOXLEY. 5% yield for 2H16 performance Its financial position remains strong with a net cash position. AIT announced to pay a DPS of Bt1.50 for 2H16, representing a 5.4% yield for the period. Its XD sign will be posted on April 19, with the payment to be made on May 9, 2017. Despite the unfavorable results, AIT will pay a total DPS of Bt2.00 for 2016, implying a 96% payout ratio, up from 79% in 2015. Figure 1: Earnings review Profit and Loss Statement (Btmn) Fiscal Year‐Ended Dec. 4Q15 Revenue 1,407 Gross profit 311 SG&A 189 EBITDA 181 Interest expense 0 Income tax 33 Net profit (loss) 117 Normalized profit (loss) 117 Reported EPS (Bt) 0.57 Gross margin 22.1% EBITDA margin 12.9% Net margin 8.3% Current ratio (x) 2.54 Interest coverage (x) 924.12 Debt to equity (x) 0.63 BVPS 13.87 ROE 17.8%
1Q16 1,113 258 127 177 0 28 108 108 0.52 23.2% 15.9% 9.7% 2.47 322.75 0.67 14.40 16.3%
2Q16 1,203 285 149 181 0 32 108 108 0.53 23.7% 15.1% 9.0% 2.58 356.25 0.62 13.42 15.7%
3Q16 1,127 284 165 174 0 29 102 102 0.49 25.2% 15.4% 9.1% 2.75 367.03 0.56 13.42 15.3%
4Q16 915 241 117 181 0 32 111 111 0.54 26.3% 19.8% 12.1% 2.82 447.12 0.54 13.98 15.1%
%QoQ ‐18.8% ‐15.0% ‐29.2% 4.2% ‐10.3% 9.7% 8.7% 8.7% 8.7%
4.2%
%YoY ‐35.0% ‐22.4% ‐38.2% 0.0% 108.1% ‐2.9% ‐5.1% ‐5.1% ‐5.1%
2015 5,156 1,220 (665) 771 5 134 533 495 2.58 23.7% 15.0% 10.3% 2.54 124.74 0.63 0.8% 13.87 17.9%
2016 4,358 1,067 (558) 710 2 121 429 429 2.08 24.5% 16.3% 9.9% 2.67 369.02 0.56 13.98 14.9%
Source: Bloomberg, KT Zmico Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
%YoY ‐15.5% ‐12.5% ‐16.2% ‐7.9% ‐69.5% ‐10.1% ‐19.4% ‐13.3% ‐19.4%
0.8%
Figure 2: Results of TOT’s bidding for National Broadband Network Categories Winners 1. Optical Fiber Cable ‐ARSS 12 core ‐ARSS 24 core ‐ADSS Armoured 12 core ‐ADSS 24 core ‐Dropwire Optic 2. ODN ‐Aerial Outdoor Splitter ‐Aeiral Straight Joint Course ‐Fiber Distribution Frame (FDF) 3.Optical Line Terminal, ONU, Enclosure and Rack 4. Switching System 5. Wireless Access Point and Wireless Controller
Price (Btmn)
Reserve Price (Btmn)
Diff
The Consortium of B&K Fuyuan Business Thai Fiber Optic JV Thai Fiber Optic JV None
1,468 418 5 2
1,583 442 4 2
‐7.3% ‐5.4% 5.3% 5.2%
Lee Kim Trading ILINK Global Mesh AIT AIT SVOA
198 39 2 684 169 239
244 63 3 1,395 286 251
‐18.9% ‐38.1% ‐25.6% ‐51.0% ‐40.9% ‐4.8%
Source: Bloomberg, KT Zmico Research Figure 3: Earnings revision Year ended Dec Total Revenue (Btmn) EBITDA (Btmn) Pre‐tax profit (Btmn) Core profit (Btm) Net profit (Btmn) % growth EPS (Bt) EPS growth (%) Gross margin (%) SG&A exp to sales (%)
Previous 5,063 778 592 473 473 8.5% 2.29 8.5% 23.3% 12.0%
2017E New 5,387 787 618 494 494 15.1% 2.40 15.1% 22.9% 12.4%
%chg 6.4% 1.2% 4.4% 4.5% 4.5% 6.6% 4.6% 6.6% ‐0.4% 0.4%
Previous 5,815 880 690 552 552 16.6% 2.67 16.6% 23.4% 12.2%
2018E New 5,337 858 686 552 552 11.6% 2.67 11.6% 24.3% 12.4%
%chg ‐8.2% ‐2.6% ‐0.6% ‐0.1% ‐0.1% ‐5.0% 0.1% ‐5.0% 0.9% 0.2%
Source: Bloomberg, KT Zmico Research
Figure 4: PER and PBV band
PER (x)
35.0
PBV (x) 6.0
30.0
5.0
25.0
4.0
+3 S.D.
20.0
+2 S.D.
15.0
+1 S.D.
3.0 2.0
+2 S.D. +1 S.D. Average
10.0 ‐1 S.D.
0.0
‐1 S.D. Jul‐03 Mar‐04 Oct‐04 Jun‐05 Jan‐06 Aug‐06 Apr‐07 Nov‐07 Jul‐08 Feb‐09 Sep‐09 May‐10 Dec‐10 Aug‐11 Mar‐12 Oct‐12 Jun‐13 Jan‐14 Aug‐14 Apr‐15 Nov‐15 Jul‐16 Feb‐17
0.0
1.0
Average
Jul‐03 Mar‐04 Oct‐04 Jun‐05 Jan‐06 Aug‐06 Apr‐07 Nov‐07 Jul‐08 Feb‐09 Sep‐09 May‐10 Dec‐10 Aug‐11 Mar‐12 Oct‐12 Jun‐13 Jan‐14 Aug‐14 Apr‐15 Nov‐15 Jul‐16 Feb‐17
5.0
Source: Bloomberg, KT Zmico Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
Financial Summary PROFIT & LOSS (Btm)
2015 5,156 (3,936) 1,220 (665) 771 (138) 633 (5) 78 619 134 10 533 2.58 2.58 495 2.40 2.05
2016 4,358 (3,291) 1,067 (558) 710 (139) 571 (2) 61 550 121 0 429 2.08 2.08 429 2.08 2.00
2017E 5,387 (4,152) 1,235 (668) 787 (144) 643 (8) 75 618 124 0 494 2.40 2.40 494 2.40 2.11
2018E 5,337 (4,041) 1,295 (662) 858 (149) 708 (7) 75 686 134 0 552 2.67 2.67 552 2.67 2.14
2019E 6,059 (4,608) 1,450 (751) 938 (154) 784 (6) 85 764 153 0 611 2.96 2.96 611 2.96 2.37
BALANCE SHEET (Btm) Cash and equivalents Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Minority interests Shareholder equity Total liab. & shareholder equity
2015 1,292 766 126 2,489 4,673 74 105 1,810 0 2,862 4,673
2016 1,874 702 124 1,812 4,512 73 58 1,628 0 2,884 4,512
2017E 1,682 887 126 2,032 4,727 51 9 1,761 0 2,966 4,727
2018E 2,119 756 123 1,558 4,556 9 0 1,474 0 3,082 4,556
2019E 1,623 1,153 115 2,278 5,170 0 0 1,918 0 3,252 5,170
CASH FLOW (Btm) Net income Depreciation & amortization Change in working capital FX, non‐cash adjustment & others Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt)
2015 657 153 241 (87) 963 (31) (699) (730) 1 0 (340) 86 (254) (21) 932 4.52
2016 550 142 89 (70) 710 (38) 373 334 (52) 0 (413) 3 (462) 582 672 3.26
2017E 494 144 (315) 0 323 (146) 112 (34) (51) 0 (413) (17) (481) (192) 177 0.86
2018E 552 149 251 0 952 (146) 115 (32) (43) 0 (435) (6) (483) 437 805 3.90
2019E 611 154 (708) 0 57 (146) 40 (106) (9) 0 (441) 3 (447) (496) ‐89 ‐0.43
PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2015 (21.2) (19.4) (19.1) 23.7 15.0 10.8 10.3 9.6 21.7
2016 (15.5) (7.9) (19.4) 24.5 16.3 11.7 9.9 9.9 21.9
2017E 23.6 10.9 15.1 22.9 14.6 10.5 9.2 9.2 20.0
2018E (0.9) 8.9 11.6 24.3 16.1 11.9 10.3 10.3 19.6
2019E 13.5 9.4 10.8 23.9 15.5 11.5 10.1 10.1 20.0
1,810 0.60 14 0.00 124.74
1,628 0.54 (271) (0.09) 369.02
1,761 0.58 79 0.03 81.35
1,474 0.47 (645) (0.21) 100.90
1,918 0.58 294 0.09 130.65
Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt)
FINANCIAL QUALITY Total debt (Btm) Total debt to capital employed (x) Net debt (Cash) (Btm) Net debt to equity (x) Interest coverage (x)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, M‐CHAI, POMPUI, TFD.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
KT ZMICO Securities Company Limited Head Office
WWW.KTZMICO.COM
8th, 15th‐17th,19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok, Thailand 10500 Telephone: (66‐2) 695‐5000 Fax: (66‐2) 695‐5173 KT ZMICO Connect 662 695 5555
Central World Branch
Amarin Branch
22nd Floor, Amarin Building, 496‐502 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 018‐6200 Fax: (66‐2) 018‐6298, (66‐2) 018‐6299
8th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 626‐6000 Fax: (66‐2) 626‐6111
Phaholyothin Branch
Sindhorn Branch
Viphavadee Branch
2nd Floor, Sindhorn Tower 1, 130‐132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 627‐3550 Fax: (66‐2) 627‐3582, 627‐3600
G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee‐Rangsit Road, Ladyao, Jatujak, Bangkok 10900 Telephone: (66‐2) 013‐8600 Fax: (66‐2) 618‐8569
BangKhae Branch
Chiang Mai Branch
Pak Chong Branch
999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan, Bangkok 10330 Telephone: (66‐2) 264‐5888 Fax: (66‐2) 264 5899
1291/1, Shinnawatra Tower II, 3rd Floor, Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66‐2) 686‐1500 Fax: (66‐2) 686‐1666
Ploenchit Branch
518 The Mall Group Building Bangkhae Branch, 6th Floor, Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Telephone: (66‐2) 454‐9979 Fax: (66‐2) 454‐9970
422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai 50100 Telephone: (053) 270‐072 Fax: (053) 272‐618
173 175, Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Telephone: (044) 279‐511 Fax: (044) 279‐574
Korat Branch
Khon Kaen Branch
Chonburi Branch
624/9 Changphuek Road, T.Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171
5th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000 Telephone: (043) 389‐171‐193 Fax: (043) 389‐209
4th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287‐635 Fax: (038) 287‐637
Pattaya Branch
Chachoengsao Branch
Hat Yai Branch
Easy Point 2, 392/65 Moo.9, T.Nong Prue, A. Bang Lamung, Chonburi 20260 Telephone: (038) 420‐965 Fax: (038) 420‐968
108/34‐36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao 24000 Telephone: (038) 813‐088 Fax: (038) 813‐099
200/301, 200/303 JULDIS HATYAI PLAZA Floor 3 , Niphat‐Uthit 3 Rd, Hatyai Songkhla 90110 Telephone: (074) 355530‐3 Fax: (074) 355534
Phuket Branch
22/61‐63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket 83000 Telephone: (076) 222‐811, (076) 222‐683 Fax: (076) 222‐861
Phitsanulok Branch
227/171 Borom Trilokkanat Road, Muang, Phitsanulok 65000 Telephone: 055‐219‐255 to 8 Fax: 055‐219‐259
Nakhon Pathom
Cyber Branch Ayutthaya
Cyber Branch @ North Nana
Cyber Branch Chiangrai
KrungThai Bank, Rojana Branch 253 Moo 5, Rojana Road, Phai Ling, Phra Nakhon Si Ayutthaya, Phra Nakhonsi Ayutthaya, 13000 Telephone: 035‐242‐477 Fax: 035‐242‐476
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd., Klong Toey Nua Subdistrict , Wattana District , Bangkok 10110 Telephone: 083‐490‐2871
River Hotel (Building 3rd),1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
KrungThai Bank, Hayaek Phokhun Mengrai Branch 116/19 Moo 19, Highway 110 Road, Rop Wiang, Mueang Chiang Rai, Chiang Rai, 57000 Telephone: 053‐715‐067 Fax: 053‐715‐068
