MCOT

Mcot Plc (MCOT)

Investment thesis
Our BUY rating stands on MCOT in anticipation of improved viewership ratings following a program revamp in July, scope for upside from digital facility and network provider licenses, a cheap valuation—an FY14 PER of 11.8x—and a high dividend yield of 7-8%. There are downside risks to our current FY13 revenue and earnings projections because MCOT missed its 1H13 top-line target, but we expect the operation to recover in 2H13, led by rising viewership ratings and ad spend market share. 
Marginal YoY profit rise expected for 2Q13
We estimate a Bt457m net profit for 2Q13, up by 3% YoY and 22% QoQ. The expected marginal YoY rise is due to the positive effects of slightly higher TV ad revenue, a jump in other income and the headline corporate tax cut to 20%, which should have outweighed the effect of higher service costs (more in-house shows). The strong assumed QoQ rise was led by an ad revenue recovery, seasonality and lower SG&A (there was a one-time Bt45m marketing expense in 1Q13).
TV ad revenue is assumed to have risen by 2% YoY and 17% QoQ (on seasonality), higher than Nielsen’s projection of a 3% YoY drop. MCOT’s TV ad income rose 5% YoY during April-May but dipped 5% YoY in June (due to the high base set by June 2012 related to the Euro soccer tournament). Ad rates have risen only for shows dating back to the January revamp—the new programs all still have weak ratings. The mean TV loading factor is assumed at 75% in 2Q13 (90% in 2Q12; 65% in 1Q13).
The firm should post flattish YoY radio ad revenue (but up 19% QoQ on marketing campaigns). We assume that income from special govt projects jumped YoY on new contracts signed during 1H13. Revenue from new media was probably flattish YoY and QoQ.
Missed 1H13 revenue target; FY13 target looks to be a stretch
MCOT’s audience share declined from 8% in Jan 2013 to 6.8% in June. Its mean audience share also fell from 8.1% in 2Q12 and 8.2% in 1Q13 to 7% in 2Q13. The firm’s ad spend market share retreated from 19.2% in 2Q12 to 18% in 2Q13 (but improved from 17% in 1Q13), attributable to its weak program ratings, especially for evening shows. The firm launched a program revamp in July. Ratings for news shows have improved, but ratings for evening game shows have not.
We are now skeptical that MCOT will achieve its Bt6.5bn FY13 top-line target (up 14% YoY), based on assumed 1.3% YoY revenue growth in 1H13. Although the broadcasting of live EPL soccer matches and related activities will boost income somewhat, there are downside risks to our FY13 revenue and earnings projections.