VGI Global Media

VGI Global Media Plc (VGI)

Investment thesis
We have cut our 4Q12/13 earnings estimate by 13% to reflect diminished expectations for ad revenue across all media categories—the seasonal effect appears to have been more intense than we previously assumed. However, we maintain our bullish FY13/14 view and our end-March 2014 target price at Bt150—an implied FY13/14 PER of 31x and PEG of 0.8x (PER/FY13-14 earnings CAGR of 39%). Weak 4Q12/13 earnings are now behind us—VGI’s subdued price performance already reflects weaker QoQ 4Q12/13 ad revenue. We expect QoQ profit growth in each of the next three quarters, which will re-invigorate the stock price performance. Our BUY rating stands.
Ad revenue to post QoQ drop on seasonality
Management guides that both BTS and modern trade media billings are likely to post QoQ declines for 4Q12/13. For modern trade media, Jan and Feb are normally low season for ad spending. Billings for March rose substantially, but not enough to offset the weak numbers for Jan-Feb. As such, we have cut our modern trade billing projection for 4Q12/13 by 10% to Bt300m. We have also trimmed our BTS media billings estimate for the quarter by 7% to Bt355m, due to slower-than-expected ad bookings for Feb-March.
Q4 2012/13 preview revisited; weak earnings behind us …
In order to factor in diminished expectations for billings across all media categories, we have cut our 4Q12/13 profit projection by 13% to Bt239m—a decline of 12% QoQ but a jump 597% YoY.
Ad revenue growth during the quarter was particularly strong in YoY terms, due to the low base set by 4Q11/12 (immediate post-flooding period), new capacity with the addition of new bogies to trains and a rising occupancy rate for modern trade media. GM should have fattened by a further 64 bps QoQ (on a greater proportion of BTS media revenue in the sales mix) and 30.4% YoY (on lower revenue-sharing obligations to BTSC) to 58%. SG&A should post a QoQ decline in absolute terms with the absence of extra marketing costs, but the SG&A/sales ratio is likely to have increased to 14.2% from 13.8% the previous quarter.
FY13/14 earnings uptrend intact
We expect VGI to post QoQ earnings growth for each of the next three quarters—33% for 1Q13/14, driven by rising in-store media billings. The 2Q13/14 profit should expand a further 18% QoQ, boosted by transit media revenue, as 35 new bogies will start operating during the quarter. We expect 3Q13/14 earnings to peak on seasonally high billings across all media categories. Our model indicates profit expansion of 56% YoY for FY13/14. Growth will be buoyed by a rising occupancy rate for in-store media (from 40% to 50%), a 23% jump in transit media capacity and 10 additional management contracts for advertising space in office buildings.