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BEC World

Digital TV to start making money this October HOLD

BEC World Plc (BEC)

- 1Q14 profit drops 17% due to political unrest

1Q14 net profit was reported at B1,149m, falling 17.5%qoq and 16.8%yoy. As

a result of the political turmoil, total income dropped by 8.3%qoq and

1.5%yoy; income from evening drama contracted most by 32%qoq.

Moreover, overall cost increased by 1.1%qoq and 12.1%yoy due to the

extension of superprimetime Thai drama broadcast time. SG&A dropped by

13.5%qoq (SG&A is usually the year's highest in 4Q) but increased by

12.6%yoy (personnel expense on the three new digital TV channels).

- To face loss from digital TV channels in the first service year

April 2014 advertisement revenue grew slightly yoy. Advertisement revenue

has grown significantly since the beginning of May thanks to high season, but

it might not stay strong for the remainder of the month because of the

unpredictable political situation. BEC plans to replace some programs with four

new programs, so advertisement revenue and income from analog channel

(Channel 3) might grow in 2Q14. However, BEC would need to book higher

expense from the three new digital TV channels (started broadcasting on April

25), mainly from amortization of the license and network rental. Cost on

programs on new digital TV channels would be very low at first because BEC

will mostly broadcast re-runs. BEC would start broadcasting new programs on

digital TV channels in June, focusing on live studio programs and news

programs with low production cost. As the digital TV channels would start

generating revenue from October on, BEC would book loss from the three

digital TV channels in 2014. BEC’s digital TV channels are expected to make a

breakeven or start generating profit in 2015. Thus, we revise down BEC’s

FY2014-2015 earnings forecast by 13.7%p.a. Under the new forecast, net

profit is expected to slip 14.6%yoy to B4,774m in 2014, then climb by

11%yoy in 2015.

- Investing for long-term benefit

Though net profit is projected to fall in 2014, it is expected to rebound from

4Q14 on. Under the new forecast, FY2014 fair value (DCF) of B56 implies

7.8% upside with FY2014 dividend yield of 4.4%p.a. We downgrade our

recommendation from buying to holding for dividend.




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