Samsung in Thailand
The Wireless Expansion
Luis Hidalgo
Matt Kostiak
Kunihiko Mikuriya
Anthony Park
Chun Tao
Roadmap
 Samsung
Electronics Overview
 Thailand
Country Overview
 Wireless
Phone Market in Thailand
 Company
 NPV
Valuation
Valuation
 Conclusion
Q
&A
Samsung Overview
 Subsidiary
of Samsung Group
 Products: Home Electronics,
semiconductors, telecom
Competitive Position I
Millions of $
Revenue Comparison
70
60
50
40
30
20
10
0
Matsushita
Sony
Samsung
Electronics
1998
1999
2000
Years
2001
Competitive Position II
Operating Income Comparison
6
Millions of $
5
4
Matsushita
3
Sony
2
Samsung Electronics
1
0
1998
1999
2000
Years
2001
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.
Reduced debt by
11 trillion Won
Reforms with Samsung
 Just-In-Time
Inventory System
 Saved
overhead
costs of $270mn.
 Reduced
debt by 11
trillion Won
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
MALAYSIA
Sri Lanka
Philippines
Brunei
Malaysia
Singapore
Indonesia
East Timor
Thailand’s history
 Founded
 Unified
in 1238
in 1350
– Only SE Asian country not colonized
 Official
religion is Buddhism (95%)
 Absolute
Monarchy until 1932
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
 Main
competitors: Nokia, Motorola
 Others: Sony-Ericsson, Sendo, TCL,
Maxon, etc
 Samsung: Technology leader
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
 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



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