VGI Global Media

5% above our estimate

VGI Global Media Plc (VGI)

Beat our estimate

VGI posted a 3Q12/13 net profit of B271m, up by 7% QoQ and 306% YoY. The result was 5% higher than our estimate, due to greater-than-expected other income. The top-line, GM and SG&A were in line with our numbers.

Results highlights

The 3Q12/13 core profit growth was driven by greater revenue and fatter margin. Revenue jumped by 51% YoY and 4% QoQ to Bt761m, in line with our estimate. Advertising receipts from the mass transit system rose by 25% YoY and 2% QoQ to Bt381m. In-store billings jumped by 83% YoY and 7% QoQ to Bt333m. Revenue from advertising space in office buildings and other media rose 79% YoY but fell 10% QoQ. Gross margin was 57.8%, a spectacular 24percent fatter YoY (but down 0.1% QoQ) on recognition of sharply lower revenue-sharing obligations to BTSC.

GM related to business with BTS was flat QoQ at 82%. Modern trade GM rose to 29percent from 26% in 2Q12/13 and office building media GM dipped to 69percent from 74% the previous quarter. The SG&A-to-sales ratio declined 100 bps YoY but increased 100 bps QoQ to 13.8% on higher marketing expenses in 3Q12/13. Net profit jumped by a hefty 306% YoY and 7% QoQ.

Outlook

In the absence of unexpected other income, we anticipate flat QoQ earnings for 4Q12/13. BTS-related revenue should increase with the replacement of illuminated posters on platform trusses at 15 BTS stations with LED screens. The long-term earnings trend remains good, underpinned by ad space expansion from the 35 new bogies for the Sukhumvit Line.

What's changed?

9M12/13 earnings represent 72% of our full-year projection and 74% of the consensus number. We have revised up our FY12/13 forecast by 1% to reflect higher-than-expected other income. Our end-March 2014 target price of Bt126 stands unchanged. Note that VGI will host an analyst meeting on January 30.

Recommendation

The stock currently trades at an FY13/14 PER of 25x, equal to FY13/14 PEG of 0.5x, compared with an average 0.9x for the Media stocks under our coverage. We believe the share price has further to run, due to the firm's strong long-term growth prospects—ad spend on non-traditional advertising channels is rising swiftly and there is scope for upside from contracts to manage ad space on seven extension routes. Our BUY rating stands.