VGI Global Media

Now even more bullish

Investment thesis

Information we garnered from VGI's analyst meeting yesterday has made us even more optimistic about its earnings outlook. Managements are more bullish on the prospects for revenue growth than our model, especially for in-store media (see our Jan 23 report: Superior growth profile justifies a further re-rating). To fine-tune for VGI's guidance we have again revised up our FY13/14 earnings forecast by 3%. We also raised our end-March 2014 DCF-derived target price to Bt132, which implies a forward PER of 27x and PEG of 0.5x. VGI currently trades at an FY13/14 PER of 23x, equal to FY13/14 PEG of 0.4x. Despite its recent share price outperformance, we believe the stock has further to run. Our BUY rating stands.

Hefty management top-line guidance increase ...

Management is now very bullish about the FY13/14 top-line growth outlook. After having talked with advertising agencies earlier this month, the firm has upped its FY13/14 modern trade media billing growth target from 10% to 40%, somewhat higher than our previous assumption of 30%. The huge jump in the modern trade media revenue target was prompted by a higher occupancy rate—up from 40% to 50%. The growth target for BTS media billings is unchanged at 20%, boosted by a 23% jump in train capacity and a 10% increase in ad rates for on-platform media. The office building media billing growth target is 20%, supported by 10 additional management contracts. As such, the overall revenue growth target is 30% up substantially from the previous guidance of 10-15%.

…and a rising GM trend

Gross margin for in-store media rose from 26% in 2Q12/13 to 29% in 3Q12/13 with greater economies-of-scale. As revenue increases at a faster pace than costs (around 29% of COGS is fixed), in-store media GM should set a new base of at least 29%. GM for office building media and other media dropped from 74% in 2Q12/13 to 69% in 3Q12/13 because LED screens at Pratunam intersection were closed for maintenance for part of the quarter, but the screens are now operational again, so GM should normalize in 4Q12/13. As such we anticipate that blended GM will rise further to 58% in 4Q12/13 and, eventually, to 61% in FY15/16.

Forecast upped, 54% earnings growth; consensus will follow

On top of our big Jan 23 earnings forecast upgrade, we have revised up our FY13/14 profit projection by a further 3% to Bt1,466m in order to factor in a more bullish in-store media bill growth assumption (from 30% to 40%). Our FY13/14 bottom-line expectation is now 18% higher than the consensus. We expect the street to follow our lead. Our new DCF-derived end-March 2014 target price is Bt132, up from Bt126 previously.