VGI Global Media

VGI Global Media Plc (VGI)
Investment thesis
We have upgraded our call on VGI to BUY from HOLD. Despite its 12% share price rise over the past month, we expect forecast ROE of 86% and exceptional earnings growth of 57% in FY13 /14 to prompt a further re-rating. We have lifted our DCF-derived YE13 target price to Bt126 from Bt70 to factor in our profit forecast upgrade and a higher terminal growth rate. Our new target implies a forward PER of 26x, which we believe is justified, given an outstanding 53% EPS growth profile. VGI currently trades at an FY13/14 PER of 21x, equal to FY13/14 PEG of 0.4x.
Negligible impact from revenue loss during test-running period
The firm guides that seasonally high revenue outweighed the effect of income foregone during the commissioning period for new bogies during the quarter. We have renewed optimism over 3Q12/13 transit media billings and expect top-line growth of 4% QoQ—receipts from in-transit media rose by 4%, in-store media by 3% and media-in-office buildings by 5%. GM should inch up on a slight increase in the proportion of high-margin in-transit media revenues. However, we also expect a QoQ jump in the SG&A-to-sales ratio on higher marketing expenses in 3Q12/13. As such, the bottom-line should post 2% QoQ growth.  
Conservative target to soon revise up
Management’s revenue growth guidance appears to be too conservative, given that in-train ad space expanded by 23% with the addition of 35 bogies, ad space on stations rose 12% with the utilization of two non-prime stations and ad rates increased 5%. As such, we estimate in-transit media billing growth of 22% (VGI guides for 20%). Management targets an occupancy rate of 60% for in-store media, up from the current rate of 40%. We assume a mid-range occupancy rate of 50%, which would translate into in-store media billing growth of 30%. We believe that there is scope for significant upside from the firm’s top-line expansion guidance of 15%.
Projections upgraded on more bullish assumptions
We have revised up our earnings forecasts from Bt914m to Bt939m for FY12/13 and from Bt1,306 to Bt1,434m for FY13/14 to reflect a more bullish top-line growth assumption (see Figure 1). Moreover, we have lifted our terminal growth rate assumption to 5% from 3%, as we think the growth prospects for unconventional media are stronger than for other types of media with the ongoing migration of ad spend to non-traditional advertising channels. Our new DCF target price is Bt126, up from Bt70, previously.
Upside from urbanization
Over the long term, management aims to ride Thailand’s upcountry urbanization wave. Its in-store media billings should increase in tandem with new modern trade retail store openings across the country. Furthermore, VGI plans to expand its business into neighboring countries, such as Laos, Vietnam and Cambodia.