MCOT

MCOT Plc

Investment thesis: MCOT won’t be required to pay a frequency auction fee in order to continue using its TV and radio bandwidth, according to NBTC commissioner, Col Natee Sukonrat, so the regulatory risks have diminished. We expect the NBTC to issue automatic licenses for TV (no more than 10 years in duration) and radio (no more than five years) to MCOT in 2013. Despite the lessened regulatory risk, our HOLD rating stands. We still prefer BEC. MCOT’s business direction is less certain (frequent changes of board members and presidents), its TV programming and ratings weaker, its ad spend market share lower and its cost structure messier than BEC’s.
Estimate a 4Q11 profit tumble: We estimate a Bt180m net profit for 4Q11, down by 52% YoY and 72% QoQ. There would have been an extra item in 4Q11—a Bt50m deferred tax expense provision as a result of the headline corporate tax cut to 23% in 2012 (and 20% in 2013). Excluding this item, core profit would still have plunged by 39% YoY and 35% QoQ. The Oct-Nov flooding prompted major advertisers to cut spending in 4Q11. We estimate that TV ad revenue dived 53% YoY and radio ad income slipped 7% YoY. The average TV loading factor fell to 50-60% in 4Q11 from 75% in 3Q11 and 125% in 4Q10. Note that SG&A is likely to post a 50% YoY fall, as the firm paid Bt130m in marketing rebates and discounts in 4Q10.
No auction fee for use of frequencies: Management and the NBTC confirmed that MCOT, a state-owned enterprise, won’t be required to pay auction fees for the continued use of occupied TV and radio bandwidth, so long as it can prove necessity-of-use for its business existence. Hence, MCOT will receive automatic licenses for TV (of up to 10 years) and radio (of up to five years) frequencies and will be subject only to annual license plus frequency and public fund fees, which together will represent no more than 4% of gross revenue. 
YE12 target price revised up 30%: Previously, we assumed a B5bn frequency auction fee for MCOT to continue using the bandwidth for ModerNine TV. Now that it is clear the firm won’t have to pay an auction fee, we have revised up our YE12 target price from Bt23 to Bt30.