Media

Flood of digital TV actions in Q2 2013

Media

- Digital terrestrial TV (DTTV) will headline in 2Q13; MCOT is better off than BEC in a

DTTV world

- We are cautious toward analogue terrestrial free-to-air (FTV) broadcasters

- MAJOR is looking at a better movie lineup

10% industry growth this year. Industry pundits estimate ad industry growth of 10% in 2013 vs. 13% in 2012 - double our earlier 5%. Facilitating the growth is high domestic consumption, greater advertising spending by specific industries such telecoms (e.g. 3G service promotions) and aggressive expansion of modern trade operators.

DTTV moving ahead in 2Q13. We believe 2Q13 will be flooded with news about DTTV, sparked by the NBTC's change in the structure of the 24 DTTV commercial channels. Earlier the proportion was 5 each for children's programming and news, 10 for standard definition (SD) variety programs and 4 for high definition (HD) variety. This has now been changed to 3 for children's programming, with 7 each for news, standard definition (SD) variety and high definition (HD) variety. The NBTC also placed a limit on the number of DTTV channels held by a single operator to three for all categories, with no more than one in each category. Also, broadcasters that run HD channels are prohibited from running news channels and vice versa. The NBTC will hold a beauty contest to decide who gets licenses as facility/network providers in April-May, with finalization of new reserve prices for the revised channel structure in April.

Broadcasters: Cautious towards FTV operators. Backed by the good 2012 and better prospects in 2013 from an ad rate hike, we raised forecasts for both BEC and MCOT. BEC's earnings go up by 4% in 2013 and 8% in 2014, leading to a new TP of Bt66 based on 24x PE, up from Bt57. MCOT's forecast is raised 11% in 2013 and 10% in 2014, with a new TP of Bt57 based on 19x PE, up from Bt38. However, we are still cautious, feeling that in 2014 there will be greater competition for ad budgets from DTTV channels and cable/satellite TV operators and this will make it more difficult for FTV operators to raise ad rates. In this climate, we see MCOT as less affected than BEC since MCOT can apply for facility and network provider licenses: it has base stations and plans to coordinate with TPBS and TOT to broaden DTTV coverage, giving it more revenue stream in the future. BEC, on the other hand, owns no such facilities.

Cable/satellite TV to show outstanding earnings. The populace is increasingly able to access cable/satellite TV and this has pushed penetration up from only 22% in 2007 to 63% in 2012 and then to an estimated 78% in 2013. At the same time, content has become more attractive, increasingly enabling operators able to draw ads. Satellite TV operators such as RS and GRAMMY have doubled ad rates this year since demand is strong and the price gap between cable/satellite TV and FTV is still wide: Bt6,000/minute vs. Bt50,000/minute - the low end of FTV rates. In 2012, ad spending via cable/satellite leapt 29% and this is expected to be followed by 27% growth in 2013. Satellite TV operators are interested in bidding for DTTV channel licenses to enlarge their viewer base and are waiting for the new reserve price to be decided. Bloomberg consensus suggests cable/satellite TV players such RS and WORK will deliver outstanding earnings growth, beating out BEC and MCOT in 2013-14.

MAJOR: Waiting for catalysts. MAJOR's price has little downside, underperforming the market by 8percent for the past six months. Lackluster movie lineup means 1Q13F (released in May) will be unexciting. Catalysts for MAJOR: a better movie lineup, more advertising revenues and a wider margin, all of which we expect to see in 2H13.