MCOT

MCOT: Hold; Bt26.25

Price Target : Bt24.75

3Q11 core profit of Bt354m (+9% YoY, -29% QoQ) was 10% and 7% short of our and consensus estimates, respectively

Weak earnings outlook for 4Q11F-1Q12F as advertisers cut spending following the flooding crisis

Valuations undemanding, but there is no share price catalyst and MCOT is exposed to regulatory risk; maintain HOLD rating and Bt24.75 TP, pegged to 10.5x FY12F PE

Result Highlights

Weaker-than-expected 3Q11 result. MCOT reported 3Q11 net profit of Bt638m. Stripping out Bt284m extra gain (after tax), core profit was weaker than our and consensus estimates because of soft TV advertising income since the floods started in September.

Recommendation

Ad spending to bottom out in Nov11. The flooding crisis has caused advertisers to reduce ad spending in September, and drastically slash spending in October, especially at Ch5 and MCOT’s Ch9. The cuts were less severe at BEC’s Ch3 and Ch7 because ad agencies need to maintain their advertising minute quota so that they do not lose that when the market turns up. Spending should have bottomed out this month and should recover in December.

Cutting costs. MCOT replaced some drama slots with news programs because of stronger demand for flood-related news. This would lower its costs, as dramas cost more to produce than news.

Ad rate hike in Apr 2012? MCOT’s management believes they would be able to raise ad rates in Apr 2012, but we cannot foresee any hikes before mid-2012.

Prefer BEC to MCOT. Given that it is a price taker, MCOT is unlikely to raise ad rates before BEC. And BEC’s earnings should recover before MCOT’s. Maintain HOLD