Most brokerages favour bec stock

BEC is involved in broadcasting, mainly through TV Channel 3 and three radio stations - FM 95.5, FM 103 and 105.5MHz - plus TV programme sourcing and production.

The company achieved a historic quarterly high net profit in the second quarter at Bt749 million, up 27 per cent year on year and 12 per cent quarter on quarter, due mainly to a hike in Channel 3's advertising rate and the station's much higher utilisation.

Advertising revenue accounted for 97 per cent of BEC's secondquarter sales revenue at Bt2.1 billion, with concert and show revenue accounting for 2 per cent and copyrights and other services the remainder.

The main risk to BEC is the enactment of the Frequency Allocation Act, as the law will allow new players to enter the broadcasting business.

CIMBGK Securities (Thailand) has upgraded its BEC recommendation from "neutral" to "outperform", but has lowered the stock's target price from Bt30.25 to Bt28.50. The stock's attractive valuation and an improved earnings outlook were behind the recommendation upgrade.

BEC's secondquarter advertising revenue surged 23 per cent year on year, outpacing overall TV advertising expenditure (adex) growth of 6 per cent as estimated by Nielsen Media Research. Concert and show revenue in the period leapt 47 per cent to Bt47 million, while copyright and other service revenue dropped 46 per cent to Bt29 million.

Given BEC's operating leverage, quarterly gross margins widened by an impressive 4.2 per cent year on year to 64.4 per cent, a record. High selling, general and administrative expenses as a percentage of revenue were cut to 15.1 per cent from 17.3 per cent in the corresponding period last year, and from 15 per cent in the previous quarter.

CIMBGK has raised its earnings estimates for BEC by between 3 and 6 per cent - to Bt2.88 billion in 2008, Bt3.15 billion in 2009 and Bt3.44 billion in 2010 - as it grows more confident of the company's operating leverage.

"We have increased our grossmargin assumptions by between 1.8 and 2.4 per cent. BEC raised advertising rates for some of its nonprimetime programmes by 10 to 20 per cent in May and further rate hikes remain possible. Following TITV's exit in January, TV adex has been on the mend. As the secondlargest freetoair TV operator by adex share, BEC is expected to book strongerthanaverage growth when TV adex rises," the broker said.

Kim Eng Securities (Thailand) has maintained its recommendation at "buy", with a fair value of Bt33.

It has kept its 2008 profit estimate at about Bt2.64 billion, after BEC's firsthalf normalised profit amounted to Bt1.45 billion.

Even with the thirdquarter low season, plus declining consumer confidence, advertising budget spending should still flow into Channel 3, which is the most popular TV station, said Kim Eng.

BEC will also enjoy ads shifted from TITV. Ad revenues are fuelled by a rate adjustment for primetime dramas in February and for nonprime and earlyprime dramas on weekdays, effective from May this year, the broker said.

BEC is expected to pay an interim dividend of Bt0.60 per share for its firsthalf operations. The fullyear dividend forecast is not less than Bt1.17, or a yield of about 5 per cent.

Given the company's strong debtfree financial position, BEC should be able to continue its attractive dividend payouts, said Kim Eng. Cash in hand was Bt3.85 billion, or Bt1.93 per share, at the end of the second quarter.

Phillip Securities has maintained its "buy" recommendation, with a 12month fair value of Bt28.25.

Adex for BEC tends to be robust in the second half, the broker said.

Advertising minutes during postevening news drama programmes last month are expected to increase, as BEC has increased its airtime for such programming by 15 minutes. In June, advertising during postnews dramas came in at 792 minutes.

Nielsen Media Research said adex at BEC in July rose 8.3 per cent year on year.

Phillips said the "News 3 Dimension" programme, which was first aired on August 7, would boost BEC's sales revenue, as it is produced by BEC and replaces programmes with shared time slots. Besides, the news programme has an advertising rate of Bt260,000 per minute, compared with that of the replaced programmes at Bt80,000Bt180,000.

The broker estimates BEC will pay an interim dividend of Bt0.50Bt0.60 per share for its firsthalf earnings.

In the other camp, DBS Group Research said BEC's stock was already fully valued.

Channel 3's audience share softened to 26.7 per cent in the second quarter from 31.4 per cent in the first three months of the year.

It lost audience share to Channel 7 (whose share grew 42 per cent in the first quarter to 45 per cent in the second), MCOT's Channel 9 (a share of 9.2 per cent in the first quarter and 9.6 per cent in the second) and NBT (2.7 per cent in the first quarter and 4.3 per cent in the second).

As a result, BEC's ad spending market share also declined, from 28.7 per cent in the first three months to 26.8 per cent in the second quarter.

BEC is expected to show softer thirdquarter earnings, said DBS. This is based on deteriorating consumer purchasing power as a result of rising inflation, and the third quarter being a low season for ad spending.

DBS has lowered its BEC net profit estimate by 4.2 per cent for this year and 6.9 per cent for 2009.

It has also cut its target price target for the stock from Bt29 to Bt23.