Samsung in Thailand
The Wireless Expansion
Luis Hidalgo Matt Kostiak
Kunihiko Mikuriya Anthony Park Chun Tao
Roadmap
Samsung
Electronics Overview
Thailand Wireless
Country Overview Phone Market in Thailand Valuation
Company
NPV
Valuation
Conclusion
Q
&A
Samsung Overview
of Samsung Group Products: Home Electronics, semiconductors, telecom
Subsidiary
Competitive Position I
Revenue Comparison
70 60 50 40 30 20 10 0 1998 1999 2000 2001 Years
Millions of $
Matsushita Sony Samsung Electronics
Competitive Position II
Operating Income Comparison
6 5
Millions of $
4 3 2 1 0 1998 1999 2000 2001 Years
Matsushita Sony Samsung Electronics
Reforms with Samsung
Just-In-Time
Inventory System
Saved
overhead costs of $270mn. debt by 11 trillion Won
Reduced
Reforms with Samsung
Just-In-Time Inventory System Saved overhead costs of $270mn.
Reduced debt by 11 trillion Won
Reforms with Samsung
Just-In-Time
Inventory System
Saved
overhead costs of $270mn. debt by 11 trillion Won
Reduced
Strategic Expansion Plan
Thailand: Increase mobile phone market share from 12% to 15% Invest: 500 million Bhat--Marketing Invest: 1 billion Bhat—Manufacturing Southeast Asia Simultaneous market expansions
Thailand overview
MYANMAR
China
South Korea Japan
Taiwan Hong Kong
Thailand
Vietnam Maldives Sri Lanka Brunei Malaysia Singapore
Philippines
MALAYSIA
Indonesia
East Timor
Thailand’s history
Founded
in 1238
Unified
in 1350
– Only SE Asian country not colonized
Official
religion is Buddhism (95%) Monarchy until 1932
Absolute
Thailand currently
Constitutional
Monarchy (1932-)
– King Phumiphon in power since 1946 – Prime Minister Thaksin since 2001
Thailand more recently
62 million people 13% below poverty line
Agricultural until 1980s Industry in 1980s included tourism, textiles, clothes, and steel Manufacturing now accounts for 80% of GDP, and includes electronics, electronics components, and automobiles
Economic Development
Late 1950s (Import Substitution) Late 1960s (Export Promotion)
– Devaluations of 1981 and 1984
1985-1995; 9% average annual growth 1996; growth slowed with more cheap labor
1997; (July) Fixed rate abandoned; Thailand enters recession 1999-2000; recovery due to strong exports
Exchange Rate
Baht per $
Short-term interest
-
1996
1997
1998
1999
2000
Foreign Direct Investment
Millions of USD
Real GDP Growth
96
97
98
99
00
01
02
Consumer Price Index
(Inflation)
98
99
00
01
02
03
Thailand’s Mobile Phone Market
Industry Overview
28% Penetration Rate
30% 25% 20% 15% 10% 5% 0% Philippines China Indonesia Thailand
Thailand’s Mobile Phone Market
Industry Overview-Service: 28% Penetration Rate Total user base: 15million Highly regulated-TOT and CAT Dominated by local service providers (AIS, DTAC)
Thailand’s Mobile Phone Market
Mobile Phone Makers: Dominated by foreign companies Top three firms(Nokia, Motorola, Samsung) make up 59% Other smaller foreign firms make up 36%
Competition
competitors: Nokia, Motorola Others: Sony-Ericsson, Sendo, TCL, Maxon, etc Samsung: Technology leader
Main
Relative Market Share
Aggregate Market Share Comparative Market Share Among Main Competitors
Samsung, 20% Nokia, 32% Others, 41% Nokia, 55% Motorola , 25% Motorola, 15% Samsung, 12%
Industry Trend
Recent
slowdown in user-base growth.
8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 1997 1998 1999 2000 2001 2002
Industry Trend Continued
Shift in Consumer Demand More focus on product features Decreased price sensitivity Expected growth of 7million unit Opportunities for product differentiation
Valuation of Samsung Electronics Co. Ltd.
WACC=35*.056*(1-.1209)+.65*.2151=.157 Modigliani and Miller Propositions V = (((1-b)(EBIT) * (1-Taxes))/(WACC-g))
– 10 year EBIT Growth Rate = 33.2%>15.7% SK real GDP growth =3.26% Payout ratio = 11%
V = (((1-.11)(3,487,911) * (1-.1209))/(.157.0326))~ 22 Trillion Korean Won
Valuation of the Thailand Mobile Phone Project
The Goldman Integrated Model R = Rf + SYS + B(Risk premium) Thailand’s beta = .89 U.S. historical risk premium = 7% Sovereign yield spread = .53%
– U.S 10-year Treasury note = 3.93% – Thailand 10- year bond = 3.4%
SYS seems much too narrow
– Increased usage of default swaps
– Analysts commonly name Thailand as the country whose yield is way out of place
The Discount Rate
R=.0393+(.0393–.034)+.89(.7) = 10.7%
Reasons why outcome so low
– The reflections through the bond spread
– Default swaps manipulated the true bond yield
Very hard to quantify any adjustments Based on our own assumptions, we doubled the discount rate to 21.4%
NPV Valuation
Cashflow Growth Rate = 39% Expected year-end 2003 = Bt 5.4 billion. We grew for the next 5 years Total Initial Investment ~ Bt 1.62 billion
Using 10.7% – NPV ~ Bt 55 billion
Using 21.4 %
– NPV ~ Bt 40 billion
Summary of Major Points
28% penetration and Samsung has a favorable marketing position Despite high discount rate, ROI given potential growth is extremely favorable Projected NPV of 39-54 billion baht
Only
Conclusions
The Thai market poses a great investment opportunity for Samsung Samsung is in a great position for growth to capitalize on its current market share and both steal market share from other major players Nokia and Motorola as well as retain market share from other smaller firms looking to expand (Sony-Ericsson, TCL, etc… Samsung has more than enough financial flexibility at the moment to continue its vigorous investment plans and potentially even invest more in marketing or R&D without fear of too much added risk