Mono Technology

Mono Technology Plc (MONO)

Investment thesis
Yesterday in a filing to the SET, MONO said that its board had approved market entry to China with an initial budget of US$10m (about Bt300m). The firm will establish a wholly-owned subsidiary in Hong Kong to operate a mobile content & media business and an entertainment unit. In light of this development, we will factor the incremental value from the expansion into China once there is clarity over revenue and profit-sharing agreements with mobile operators in that country. Even in the absence of China, the FY13-15 earnings growth profile is strong, driven by increasing MVAS usage among subs at TRUE and GM expansion. BUY!
Deals with mobile operators China
Local media reported that Mr Navamin Prasopnet, assistant chairman, executive director and chief marketing officer of the firm, said that it will work with three Chinese cellular operators—China Mobile, China Unicom and China Telecom—to start marketing to their respective subscribers, starting with the two western provinces of Yunnan and Sichuan and also Chongqing (a municipality in Sichuan that is administered directly by Beijing).
There is huge potential for long-term business growth in China, we believe—the three mobile operators have about 1.2bn subscribers between them. In the interim, Chongqing has 22m subs, Sichuan 59m and Yunnan 31m—112m in total, substantially more than the total mobile subscribership of Thailand of 83m.
Profit and target price accretions
If MONO were to use the same marketing strategy as it used for Thailand—penetrating by initially launching a marketing campaign with the largest mobile operator and building a significant market share within 2-3 years—we would conservatively assume a 5% market share of China Mobile’s subscribership in the three administrative areas (around 3.5m subs for the firm in the first year). Assuming that ARPU and GM are comparable to Thailand, we guestimate that the new business would add about Bt200m in MVAS revenue in FY14, a 9.2% boost to our current net profit forecast and a Bt1.3 increase to our target price (EPS up Bt0.6).
The 3 initial markets comprise less than 1/10 of China—scope for further expansion
The three provinces account for only about 40% of the subscribership of western China and less than 10% of the country as a whole. Assuming that the next step may be footprint expansion to all the other western provinces, MONO could conceivably have 8.8m subs by YE14 (upside of 23% to our current FY14 profit forecast and Bt4.9 to our YE14 target price). Furthermore, the firm targets eventually entering six ASEAN markets; it is currently in only two—Indonesia and Vietnam. There’s much more to come, we believe.