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BEC World

Share price drop below fair value. Good entry point BUY

BEC World Plc (BEC)

BEC has been rebounding. In a worst-case scenario, if BEC has to pay

share of its revenue to the NBTC in order to use an HD channel for

simulcast of Channel 3 on the digital platform in parallel with the

analog Channel 3, its fair value would be slashed by B4 to B52, still

implying upside. We upgrade our recommendation from HOLD to BUY.

- Profit rebounds slightly from 1Q14


2Q14 net profit was reported at B1,178m, falling 17.1%yoy due to increasing

cost on three new digital TV channels. Advertisement revenue grew by only

1.4%yoy. However, compared with 1Q14, 2Q14 net profit grew by 2.6%qoq.

Though BEC had to recognize amortization cost of the license and network

rental cost from April 25 on, they has been compensated by 8.7%qoq rise in

advertisement revenue (digital TV advertisement made up 1% of BEC’s total

advertisement revenue, or B40m). Cost on programs on new digital TV

channels was very low because BEC mostly broadcast re-runs.

- Digital TV officially launched this October

Advertisement revenue is expected to grow in 2H14 thanks to recovering

economy and consumer confidence. However, cost on new programs on digital

TV channels would gradually increase; BEC would emphasize on news programs

and live studio programs with low production cost at first. 3Q14 net profit is

estimated to grow slightly from 2Q14. Then, BEC's digital TV channels will be

officially launched in 4Q14, and there would be new programs from external

content producers or international content, increasing production cost from

3Q14. BEC would sell its advertisement space in bundle (for both analog TV

and digital TV channels), so its revenue is expected to continue growing qoq.

However, as BEC’s SG&A tends to peak in 4Q, 1Q14 net profit is expected to

stay flat from 3Q14.

1H14 net profit made up 49% of FY2014 net profit forecast. We maintain our

FY2014-2015 earnings forecast, projecting net profit to drop 14.6%yoy in

2014, then rebounds 11%yoy in 2015.

- Good entry point. BUY

BEC still possesses some risk now. On May 22, 2014, BEC filed a complaint

against the NBTC in the Administrative Court. According to the NBTC’s mustcarry

rule, analog Channel 3 is no longer available as free-TV channel, as digital

TV channels would be considered free-TV channels and need to be aired in

every platform. For the worst-case scenario, if BEC loses the case, BEC will

have to pay 4% of its revenue to the NBTC in order to use an HD channel for

simulcast of Channel 3 on the digital platform in parallel with the analog

Channel 3. We revise down BEC’s FY2014 earnings forecast by 4% and cut its

fair value from B56 to B52, still implying 15.6% upside. We upgrade our

recommendation from HOLD to BUY.


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