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MCOT

FY14 top-line target looks too optimistic Bualuang Securities

MCOT Plc

Investment thesis

Following the analyst meeting, we expect the digital TV unit to drag down MCOT's FY14 earnings. However, new businesses—digital set-top box sales and the sub-lease of digital network—will mitigate the cost burden of digital TV. In the meantime, MCOT offers a high dividend yield of 7.3percent for FY14. We have not yet factored digital TV into our model. Our TRADING BUY stands.

4Q13 results recap—26% below our estimate

MCOT posted a Bt332m net profit for 4Q13, down by 31% YoY and 12% QoQ. Stripping out a Bt56m one-time provision for the Rai Som court case in 3Q13, core earnings tumbled 23% QoQ. Net profit undershot our estimate by 26%, due to lower revenue and higher SG&A than modeled. The top-line was 7% below our estimate because of weaker TV ad revenue than assumed.

TV ad receipts dropped by 4% YoY and 10% QoQ. Income from new media fell 15% YoY. Radio ad income was flattish YoY, underpinned by extra marketing events bundled with ad sales. Service costs jumped 25% YoY on more in-house programming.

Bt6.7bn revenue target for FY14—too optimistic, we believe

The firm targets a Bt6.7bn top-line for FY14, up 17% YoY, led by Bt6.2bn in revenue from broadcasting and Bt500m in income from nonbroadcasting businesses. With regard to broadcasting, FY14 TV ad revenue (including special government projects and digital TV) is targeted at Bt3.6bn, up 3%, with the remainder from radio ad income (Bt900m, down 6%), concessionary income (Bt970m, up 4%), new media (Bt400m, up 18%) and digtial network or Mux (Bt100m). Among nonbroadcasting units, MCOT targets selling 1m digital set-top boxes in two years (600k in FY14, the remainder in FY15).

We believe the FY14 top-line target is too optimistic, given the current consumption slowdown, unfavorable political climate and the upcoming launch of 24 new terrestrial free-to-air digital TV channels (22 of which will be in competition with MCOT for audience and advertising). Our FY14 forecasts are Bt6.4bn in revenue, up 12% YoY, and a Bt1.65bn net profit, up 8% YoY.

Simulcast analog channel on digital platform during April-June

MCOT aims to simulcast its ModerNine (analog) content on its digital platform during April-June 2014, then will rebrand the digital HD platform, July-Dec 2014. By January next year, its HD channel will have completely different content from the analog channel. MCOT claims that it will charge higher ad rates for bundled sales between its analog and digital platforms and targets a 2-3 years to breaking even (we assume 4-5 years, given intensified competition for TV ad spend from new entrants to the broadcast TV industry).




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