MCOT

MCOT Plc

Investment thesis
We regard MCOT as a safe haven high-dividend play—6.3% for FY13, a 2.5% premium to the 10-year Thai govt bond yield of 3.84% (yesterday’s close). Our BUY rating stands, premised on an ad spend recovery in 2Q13, solid FY13 earnings, scope for upside from digital TV licenses and a generous dividend.
Mux license issuance expected in June
Col Natee Sukonrat, chairman of the NBTC’s broadcasting committee, said that the NBTC will grant digital network (multiplexer: Mux) licenses by June 30 before the auction of digital commercial channel licenses, expected in Sept 2013. Mux licensees must declare their digital network rental rates—for both standard (SD) and hi-definition (HD) channels—to digital channel service providers one month before the auction of digital channel licenses.
There is currently a surplus of applicants for the six Mux licenses to be awarded. Five state agencies—MCOT, Channel 5, The Public Relations Department, Channel 11 and TPBS—filed applications for Mux licenses. In the private sector, TRUE, INTUCH and SAMART also applied for licenses. We expect the NBTC to issue Mux licenses to all the state agencies/SOEs engaged in broadcasting first, with the sixth license going to one of the private sector applicants.
Facility license issuance slated for June or July
The NBTC will issue digital facility licenses within two months, according to Col Natee. State-owned terrestrial free-to-air TV operators—MCOT, TPBS, Channel 11 and Channel 5—and state telecoms firms—TOT and CAT—have applied for digital facility licenses. Free-to-air TV operators currently have a total of 160 broadcasting towers—MCOT (36), TPBS (52), Channel 11 (32) and Channel 5 (40)—while TOT and CAT have extensive networks of towers nationwide used for telecoms transmission.
Incremental value of 3-4/share for one Mux license
The NBTC’s working committee determined that each Mux licensee will have a maximum capacity of carrying two HD channels and six SD channels for digital terrestrial commercial TV operators. Assuming rental revenue of Bt5m/month/SD channel and Bt12.5m/month/HD channel, we estimate that MCOT’s rental income would be in the region of Bt660m/annum for one Mux license.
Assuming a net margin of 15-20%, one Mux license would add Bt100-130m (4-6%) to MCOT’s FY14 bottom-line and Bt3-4/share to our target price. We have not yet quantified the potential incremental value of a digital facility license (on top of a Mux license).