VGI Global Media

VGI Global Media Plc (VGI)

Beat our estimate
VGI posted a 1Q13/14 net profit of B308m, up by 93% YoY and 37% QoQ. The result beat our estimate by 9% and the consensus by 10%, thanks to higher-than-expected ad revenue and gross margin. Sales were 2% above our model and gross profit exceeded our assumption by 300 bps, while SG&A was in line with our number. VGI’s board approved a par spit (existing:new) of 1:10.
Results highlights
The explosive YoY earnings growth was led by ad revenue across all media platforms and GM expansion. Advertising receipts from the mass transit system rose by 35% YoY and 15% QoQ to Bt415m. There was no discernable seasonal effect on ad revenue tied to BTS during the quarter. In-store billings jumped by 27% YoY and 30% QoQ to Bt389m. The YoY increase was driven by greater advertising space capacity and new bundled ad packages. Revenue from advertising space in office buildings and other media jumped by 27% YoY and 45% QoQ to Bt45m with the acquisition of rights to manage advertising media in 12 office building and sales commissions on mega LED screens (consignment basis).
GM related to media in the BTS system was flat QoQ at 82%. Modern trade GM rose to 28% from 21% in 4Q12/13 and office building media GM rose to 73% from 63% the previous quarter. The SG&A/sales ratio declined by 180 bps YoY and 120 bps QoQ to 12.8%.
Outlook
We anticipate that earnings will post QoQ growth through to 3Q13/14 (Oct-Dec). Revenue from transit media should rise QoQ in 2Q13/14 on seasonality and we expect GM to expand on an improved occupancy rate for in-store media. Earnings will peak in 3Q13/14, boosted by higher ad rates with the new bundled ad packages and increasing ad spend across all media platforms during high season.
What’s changed?
Our FY13/14 earnings forecast rises 3% to reflect better-than-expected 1Q13/14 results. The 1Q13/14 profit represents 21% of our new full-year projection and 23% of the consensus number. We have also reduced WACC from 10.7% to 10.2%, as we expect the par spilt to technically increase trading liquidity, easing liquidity risk and WACC. As such, our YE13 target price rises to Bt150 from Bt134. Note that VGI will host an analyst meeting on August 1.
Recommendation
We like the stock for its long-term growth outlook, while the par split will ease trading liquidity risk. VGI currently trades at an FY13/14 PER of 27x, equal to FY13/14 PEG of 0.5x, slightly below the 0.6x mean of the Media stocks under BLS coverage.