Brokers upbeat on GMM Grammy

Grammy has a 79.75percent stake in GMM Media.

Eleven of 13 brokerage houses, including BNP Parisbas, Kim Eng Securities (Thailand), SCB Securities, Seamico Securities, Phillip Securities (Thailand), DBS Vickers Securities and Kasikorn Securities, who updat¬ed their reports about Grammy from July to August, recommended "buy". They suggested a target price in the range of Bt14.60Bt17.30.

Two brokers recommended "hold".

GMM Grammy is Thailand's largest entertainment firm with interests spread over music, event organising, movies, publishing, radio stations, TV programme production, a fitness club, studio and music acad¬emy.

GMM Grammy's consolidated revenue in the first half was Bt3.47 billion, with music sales contributing 36.18 per cent, followed by TV adver¬tising 22.05 per cent, event organis¬ing 11.37 per cent, radio advertising 9.79 per cent, artist management fees 3.89 per cent, publishing 3.89 per cent, concert production 2.45 per cent and other revenues making up for the rest.

GMM Grammy will hold a share¬holders' meeting on September 25 for approval to issue additional 40.56 million shares as part of a business restructuring.

It will then make a tender offer to buy the remaining 20.25percent stake from minor shareholders of GMM Media through a 1:1 share swap before delisting GMM Media's stock from the SET. GMM Media now contributes 30 per cent to Grammy's operating profit.

Grammy's stock has risen 32.32 per cent this year while the SET Index has slumped nearly 20 per cent.

Phillip Securities has reiterated a "buy" rating with a 12month target price of B17.

Grammy racked up a gain of 16.69 per cent year on year in the second quarter with revenues of Bt1.9 billion on the back of strong growth in its media and film businesses. Its quar¬terly net profit surged 51.32 per cent on year to Bt207.10 million.

In this quarter, core music busi¬ness, media business operated by GMM Media, film business and oth¬ers contributed 47 per cent, 47 per cent, 4 per cent and 2 per cent of total revenue respectively.

Core music revenue fell 10.62 per cent year on year, while media and film businesses and others posted revenue growth of 23.60 per cent, 75.43 per cent and 719.94 per cent year on year respectively.

The dilution from the share swap was expected to take place in 2009 but Grammy's yearly net profit would still jump 7.49 per cent year on year to Bt597.76 million, the bro¬ker said. 

"Despite the potential dilution from issuing new shares, we believe 2009 EPS growth will see 9.04percent yearonyear growth," the bro¬ker said.

Event activities are expected to pick up in the second half of this year, the broker said.

Grammy's 25th anniversary cel¬ebrations will kick off with the release of two series of "Long Play" with a total of 22 albums, "Play List" with a total of 17 albums, and albums of PeckAofIce, Shin, M, Nat Myria, Panadda and Clash in the third quarter.

There will be a big BABB Bird Bird Show of Thai superstar Bird Thongchai, a Magic Memories con¬cert and a 7 Divas concert, as well as a new musical adaptation of the famous novel "Kang Lang Phap" (Behind the Painting) in the second half.

Grammy also joins hands with mobile operator DTAC to launch Happy Vampire for unlimited digi¬tal music downloads at a monthly charge of Bt20. One million sub¬scribers are expected to sign up for the service in the next six months and the figure will rise to 3 million in a year. There is a horror movie "Coming Soon" to be released in September. The horror genre normally makes big bucks.

Seamico Securties has recom¬mended "buy" with a fair value of Bt14.90.

Merging GMM Media will give greater flexibility to the Grammy group as a whole, given the low liq¬uidity of GMM Media stocks and the insignificant benefits from it remain¬ing a listed firm, the broker said.

The broker estimated that Grammy's dilution effect would be slight at 0.30.5 per cent when the additional shares are factored in while the incremental profits from GMM Media's 20.25 per cent after the integration would exceed the dilution effect.

Tisco Securities has raised its tar¬get price to Bt14.20 each to reflect the merger with GMM Media but it has maintained a "hold" rating on Grammy as the current market price is fully valued.

It has revised up its earnings fore¬casts for Grammy to reflect the amal¬gamation to Bt624 million in 2008, Bt684 million in 2009 and Bt747 million in the following year.

"Grammy should post strong earnings growth of 24 per cent this year [due to the merger] but momen¬tum should slow in 2009, partly due to its larger earnings base," the bro¬ker said.