In August, the clouds over ad spending appear to be breaking up, notably for digital TV. Though the share of internet ad spending is growing, we believe growth in other media, particularly OOH, will return.
WORK is our broadcaster pick as DTTV picks up more advertising dollars: both have plenty of room to bump up rates.
Ad spending update. According to Nielsen data, ad spending in August 2016 continued to sink YoY to Bt10.1bn – but the fall slowed to 2.5% YoY from the -9% on average since the start of the year. Though there is no recovery in analog TV or print media (magazines and newspapers), out-of-home (OOH) media and the internet are growing, surging 50-170% YoY. Digital TV is clearly separate from analog, with a 12% YoY rise in August, the first month this year in which ad spend rose.
Internet is not a real threat. A recent conversation with Mindshare, a media agency, leads us to believe that ad spending on internet as given by Nielsen is too low. It believes ad spending on internet will approach Bt10bn (not Bt1bn) by the end of this year, which is close to the number reported by Digital Advertising Association (DAAT). This represents about 10% of total ad spending. The discrepancy between two sources is that DAAT collects actual data from more and bigger websites, including Facebook and Google. According to DAAT, internet advertising grew despite the wavering economy over 2013-2016, largely because it is far cheaper than traditional media, particularly TV. It is also being seen as effective as increasing numbers of Thais spend time on the internet. Still, we expect ad budgets to return to their focus on traditional media when the economy recovers, given the already high percentage of internet advertising and its niche market by nature.
Cyclicality, not a fundamental shift. We believe ad spending will continue the move down seen since 2013 and though the market is beginning to wonder if this decline is a permanent trend, we argue that it is simply a cyclical move down. We believe that it does not represent a structural shift and expect the cycle to end this year; though the downturn could hang on until 2017, we believe we are approaching the tail end. A look at past history shows that a steeper fall led to a steeper rebound. Our study also suggests that ad spending per person in Thailand is still far below that in other countries, especially developed countries. This implies that ad spending in Thailand has room to grow for many years to come
WORK is our top pick. We continue to like WORK based on the fact that it is the prime beneficiary of an ad rate hike since its cost per rating point (CPRP) is very low at a 50% discount to the leaders, which we feel is unjustified given the steady gain in TV rating. We expect 73% EPS CAGR in 2016-18 and ROE will double to 17% in 2018 from 7% in 2015. It is the cheapest stock in terms of PEG. WORK is a growth stock and we rate it Buy with a DCF-based TP of Bt55.