MCOT

MCOT Plc
 

Investment thesis: We reiterate our HOLD rating on MCOT, based on a cheap valuation—an FY12 PER of 13x against a 21x sector mean—and a high dividend yield of 8%. Over the longer-term, competition within the terrestrial TV industry will heat up after the NBTC starts issuing digital TV licenses, perhaps as soon as 4Q12. MCOT’s content is relatively weaker than that of its peers, so its ability to command free-to-air ad rate increases may be weaker in an environment where more players are competing for ad spend. There would be scope for future upside if the firm were to find a partner to develop a 50-rai plot it owns. We will revisit our model if a project goes ahead.
Expect flat YoY profit growth for 1Q12: We estimate a Bt360m net profit for 1Q12, down 1% YoY but up 172% QoQ. The QoQ jump is attributable to the post-flooding ad spend surge. The flat YoY profitability is due to flat revenue and stable overall OPEX. Ad revenue from TV should be posted flattish YoY but up 28% QoQ (Nielson numbers indicate 1% YoY slippage for 1Q12) and from radio up 4% YoY but down 14% QoQ. The average TV loading factor in 1Q12 was 80%, up from 74% in 4Q11 (but down from 95% in 1Q11). MCOT’s earnings recovery probably lags that of BEC. 
Solid 2Q12 earnings expected: The firm should post a net profit of Bt520-550m, up by 4-10% YoY and 45-53% QoQ, bolstered by seasonality, pre-launch ads for the UEFA EURO 2012 soccer tournament and a full quarter of ad rate increases that became effective during 1Q12.
More threatened by digital TV than BEC: MCOT plans to bid for at least two digital TV channels when the NBTC starts auctioning licenses. In light of the fact that its content tends to be weaker than that of BEC or Channel 7, we doubt that it will have the same ability to increase its free TV ad rates (or even hold them at current levels) as its major current terrestrial competitors.
New president expected in June: The board of directors is in the process of recruiting a new president. Applications will close on May 15 and an appointment is expected in June. Obviously, an operational boss would be positive for MCOT. With a new chief, the firm could move more quickly to recruit a joint venture partner to develop its 50-rai land plot on Ratchadapisek Road.