Samsung in Thailand: Samsung in Thailand The Wireless Expansion Luis Hidalgo Matt Kostiak Kunihiko Mikuriya Anthony Park Chun Tao


Roadmap: Roadmap Samsung Electronics Overview Thailand Country Overview Wireless Phone Market in Thailand Company Valuation NPV Valuation Conclusion Q & A


Samsung Overview: Samsung Overview Subsidiary of Samsung Group Products: Home Electronics, semiconductors, telecom


Competitive Position I: Competitive Position I


Competitive Position II: Competitive Position II


Reforms with Samsung: Reforms with Samsung Just-In-Time Inventory System Saved overhead costs of $270mn. Reduced debt by 11 trillion Won


Reforms with Samsung: Reforms with Samsung Just-In-Time Inventory System Saved overhead costs of $270mn. Reduced debt by 11 trillion Won


Reforms with Samsung: Reforms with Samsung Just-In-Time Inventory System Saved overhead costs of $270mn. Reduced debt by 11 trillion Won


Strategic Expansion Plan: 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: Thailand overview MALAYSIA MYANMAR Japan Taiwan South Korea Hong Kong Philippines Vietnam Indonesia Malaysia Singapore China Thailand East Timor Brunei Sri Lanka Maldives


Thailand’s history: Thailand’s history Founded in 1238 Unified in 1350 Only SE Asian country not colonized Official religion is Buddhism (95%) Absolute Monarchy until 1932


Thailand currently: 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 Thailand more recently


Economic Development: 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: Exchange Rate - Baht per $ Short-term interest 1996 1997 1998 1999 2000


Slide16: Foreign Direct Investment Millions of USD


Slide17: Real GDP Growth 96 97 98 99 00 01 02


Slide18: Consumer Price Index 98 99 00 01 02 03 (Inflation)


Thailand’s Mobile Phone Market: Thailand’s Mobile Phone Market 28% Penetration Rate Industry Overview


Thailand’s Mobile Phone Market: 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: 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: Competition Main competitors: Nokia, Motorola Others: Sony-Ericsson, Sendo, TCL, Maxon, etc Samsung: Technology leader


Relative Market Share: Relative Market Share Aggregate Market Share Comparative Market Share Among Main Competitors


Industry Trend: Industry Trend Recent slowdown in user-base growth.


Industry Trend Continued: 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. : 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 : 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: 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 : 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: Summary of Major Points Only 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


Conclusions: 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