VGI Global Media

VGI Global Media Plc (VGI)
Investment thesis
Subdued ad spending among big consumer product advertisers is probably squeezing VGI’s in-store media revenue. As such, we are very skeptical that the firm will achieve its FY13/14 in-store media growth target of 40%. However, robust transit media ad billings expansion should offset the effect of weak in-store media receipts. Moreover, the par split should boost trading sentiment toward the stock. We have adjusted our price target to factor in the par split (from Bt1 to Bt 0.1, or 1:10). Also, we have rolled over our investment horizon to end-March 2015 and arrived at a new DCF-derived target price of Bt15.4.
In-store media beating overall market, but looks set to miss target …
The industry numbers are bad—in-store media ad spending slid 18% YoY in July and dived 30% YoY in August, according to Nielsen. Big consumer product advertisers, such as Procter & Gamble, Unilever Holdings and L'Oreal, cut their ad spending amidst a domestic consumption slowdown. Although VGI’s in-store ad billings for July-August posted both YoY and QoQ growth, given the broader industry trend, we are very skeptical that the firm will achieve its target of 40% (or even our assumption of 34%). We expect management to cut its in-store media growth target after the release of 2Q13/14 results.
…but transit media ad revenue continues to expand
Transit media ad spending rose by 10% YoY in July and 6% YoY in August, according to Nielson. VGI guides for robust growth in July-August ad billings. In addition, the firm increased its ad rates by around 8% for some packages for static posters at BTS stations (~7% of total revenue) during the quarter. We expect transit media billings growth to exceed management’s FY13/14 target of 20% (we currently assume 30% expansion).
Earnings to report hefty QoQ and YoY increase for 2Q13/14
Our model indicates that VGI will post 2Q13/14 earnings of Bt351m, up by 39% YoY and 14% QoQ. Revenue should rise across all media categories, led by transit—ad rate rises for static media at BTS stations and a full operational quarter for 35 bogies that were added in May. As such, GM should rise further to 50.5% from 48% in 1Q13/14 and 49% in 2Q12/13 on rising proportions of transit and office building media receipts in the sales mix.
What if in-store media billings fall short of our assumption?
There is downside risk to our FY13/14 in-store media growth assumption of 34% (less bullish than VGI’s 40% target). For every 1% that FY13/14 in-store billings growth fell short of our assumption, we would probably cut our earnings forecasts by 1.2% for FY13/14 and by 1% for FY14/15.