BEC World

BEC World Plc (BEC)

Investment thesis
BEC’s recent share price drop is due to market concerns over greater competition for ad spend, once the 24 commercial digital channels come into play. But we don’t expect digital TV to impact on BEC until 2015-16. Meanwhile, its fundamentals remain strong. Our TRADING BUY rating stands. 
Expect record 2Q13 revenue and earnings
We estimate a Bt1.49bn net profit for 2Q13, up by 20% YoY and 8% QoQ. The YoY rise is attributable to stronger ad revenue, better OPEX control and the headline corporate tax cut to 20%. The assumed QoQ rise is thanks to high season and good OPEX control.
Our model indicates Bt3.8bn in ad receipts for 2Q13—up by 9% YoY and 8% QoQ—led by a 67% ad rate rise to Bt200K/min for the Krua Khun Toy, Monday-Friday 13.40-14.10 slot, effective May 2013, mean ad rate hikes of 15% for 30 shows, effective Jan 2013, higher ad rates for Rueng Lao Sao Arthit, effective July 2012, and the re-claiming of free Thai soap opera re-run minutes during 2Q12. Our ad revenue growth estimate is close to Nielsen’s 9% YoY estimate for BEC (note that we expect growth, despite the high base set by June 2012 with the Euro soccer tournament).
Revenue from concerts and shows should post a 38% YoY drop (but a 35% QoQ rise), due to fewer concerts and shows—The Phantom of the Opera and three small concerts during May-June 2013. We assume GM at 54.8 %, higher than the 52.5% posted for 2Q12.
Audience share back on-track in 2Q13
Besides Krua Khun Toy, BEC launched three other shows in 2Q13—Miss Country Girls, The Voice Kids and Thailand’s Got Talent Season 3. Its 2Q13 audience share improved both YoY and QoQ—33.9% against 32.3% in 2Q12 and 32.6% in 1Q13—led by the ratings of super-prime Thai soap opera slots. The firm’s 2Q13 ad spend market share rose to 30.5% from 28.4% in 2Q12.
Plan to bid for two digital channels
BEC intends to bid for one standard-definition variety channel and one high-definition variety channel. It also says it will broadcast its current analog TV channel until concession expiry in March 2020 and that its analog and digital channels will offer different content.
We believe that BEC’s ad spend market share and analog channel ad rates will decline once digital penetration reaches about 50% population coverage, given that its viewing audience is dominated by middle to higher income demographics. The advent of new digital TV channels poses a long-term threat to BEC’s profitability, but in the meantime its numbers will be good.