Mono Technology

Mono Technology Plc (MONO)
Investment thesis
We are now more concerned about MONO’s short-term outlook, as the MVAS operation has suffered from technical problems for some months. MVAS revenue is likely to remain subdued through the remainder of this year. As such, we have cut our FY13 and FY14 earnings forecasts, so our YE14 target price drops to Bt13 from Bt14. Despite our forecast and target price cuts, we remain confident in MONO’s long-term outlook. Furthermore, if it were to win a digital TV broadcasting license, we would expect the market to focus on the scope for value creation from digital TV rather than weak MVAS income. Our BUY rating stands.
Technical problems will hit 3Q13 numbers
MVAS revenue has been squeezed because the MVAS service for mobile subscribers that migrated from 2G to 3G networks (both ADVANC and DTAC) was disrupted—there was a compatibility problem between MONO’s software and the new 3G networks. We expect MVAS service revenue to post a decline to Bt314m in 3Q13 from Bt342m in 2Q13, making for a top-line of Bt343m, down by 11% YoY and 12% QoQ. However, we understand that marketing cost control during the quarter reduced variable costs. As such, GM is likely to be reported at 63.8%, up slightly from 63.5% in 2Q13. Net profit is modeled at Bt124m, down by 17% YoY and 31% QoQ.
Fully recovery in 1Q14
The technical problems were solved in Sept, according to MONO. But it may take several months to rebuild MVAS subscribership to the level it was in 1Q13. We expect earnings to post some QoQ growth in 4Q13, but in YoY terms it will decline. A full profit recovery should manifest in 1Q14. We have cut our earnings forecasts by 9% for FY13 and by 15% for FY14.
Scope for upside from digital TV
Mono purchased digital TV auction bidding documents for three different license categories—HD variety, SD Variety and News. As the NBTC prohibits any single party from bidding for the licenses for both an HD channel and a News channel, MONO must select either one or the other. Management did not indicate a preference except to reaffirm that the firm will bid to win at least one license. It claims to have already secured most of the programming necessary to broadcast a variety channel.
We expect MONO to bid for licenses for SD Variety and News channels—it had cash on-hand totaling Bt2.7bn at end-June and will spend around Bt1.5bn on other CAPEX, so about Bt1bn is free for TV license bidding. However, MONO’s net cash position would enable it to take on debt if it were to bid for an HD license. We roughly calculate possible incremental value of Bt1.9/share for an SD license and Bt1.1/share for a News license. However, there are major variables we can’t predict with any accuracy—final bid prices, advertising rates, utilization rates and programming costs.