BEC World

Ad revenue bounce in Jan BUY (maintained) Target Price: Bt45.50 Price (01/02/12): Bt43.00

BEC World Plc (BEC)

Investment thesis: We reiterate our BUY rating on BEC, premised on a strong ad revenue turnaround in Jan, the likelihood of prime-time ad rate rises in March and possibly a super-prime ad rate increase in Oct. Channel 7's current management problems and deteriorating viewer ratings will benefit BEC during the next 3-6 months. The stock remains one of our preferred picks in the Media sector.

4Q11 profit tumble: We estimate a Bt610m net profit for 4Q11, down by 32% YoY and 38% QoQ. Stripping out a one-off item—a deferred tax provision of about Bt60m—core profit would have by plunged 21% YoY and 32% QoQ. The tumble is attributable to the flooding—BEC's top-five clients slashed ad spend during Nov-Dec. We estimate that 4Q11 ad revenue fell by 12% YoY and 19% QoQ. Disaggregated by month, the company guided that Oct ad revenue was solid (up 9% YoY), but ad income plunged by 35% YoY in Nov and fell 10% YoY in Dec (but recovered somewhat MoM).

Cost management in 4Q11: In Nov, the ad revenue drop prompted management to slash broadcasting minutes for Thai soap opera slots by 75 minutes/day altogether—early-prime (by 15 minutes/day) and super-prime (by 60 minutes/day). BEC resumed normal broadcasting minutes for its early-prime Thai soap opera slots in Dec and for its super-prime Thai soap opera slots in Jan, following the incipient ad spend recovery in late Dec. As such, 4Q11 margin shouldn't have been squeezed too hard.

Anticipate ad rate increases in March: Mr Chatchai Thiamtong, VP of finance, claimed that ad revenue booked in Jan will post double-digit YoY growth, based on strong post-flooding ad recovery signals. BEC is currently considering increasing ad rates in March. We think a number of prime-time shows (such as weekend morning news and late-night news shows) would be good candidates for rate rises. Assuming a strong ad industry turnaround, starting 2Q11—bolstered by UEFA Euro 2012 and the 2012 Olympic Games—we think another round of ad rate increases for super-prime slots would be likely in Oct. In the meantime, prime-time ad rate rises in March would constitute upside to our current FY12 profit model.

FY12 net profit forecast upped 5%: We have revised up our bottom-line projection for this year from Bt4bn to Bt4.2bn to factor in higher loading factor assumptions for early-prime and super-prime Thai drama slots. Hence, our DCF-based YE12 target price increases by 6% to Bt45.5.