MCOT

MCOT Plc

Investment thesis
Our TRADING BUY rating stands, premised on a cheap FY14 PER of 12.7x and a high dividend yield of 7%. Although the advent of new digital TV channel licenses might erode MCOT’s net value (due to value deterioration of its analog channel), the firm stands to benefit from a digital Mux license. Given its current weak programming and share of ad spend, there are some downside risks to our FY13 revenue and earnings projections.   
YoY decline in 3Q13 core profit expected
We estimate a Bt386m net profit for 3Q13, down by 20% YoY and 13% QoQ. Excluding a Bt56m in one-time provision for the Rai Som court case, core profit would be Bt442m, down by 8% YoY and 1% QoQ. The assumed YoY core profit drop is attributable to lower revenue and heavier OPEX tied to in-house productions and programming costs. The QoQ dip is due to higher OPEX, which we expect outweighed the effect of increased revenue.
TV ad revenue is assumed to have declined 3% YoY (but risen 9% QoQ), which is close to Nielsen’s projection of a 3% YoY dip. The July TV programming revamp has not yet yielded stronger TV viewership ratings. We assume a mean TV loading factor of 78% in 3Q13 (against 92% in 3Q12 and 75% in 2Q13). The firm should post a decline of 2% YoY and 2% QoQ in radio ad revenue. We assume that there was one Bt200m special govt project—Roi Mue Sang Muang—in 3Q13. Revenue from new media is likely to be reported flattish YoY and QoQ.
Stable audience share, but weaker YoY ad spend share in 3Q13
MCOT’s audience share was flattish YoY but rose a little QoQ—7.7% against 7.8% in 3Q12 and 7.0% in 2Q13. Overall program ratings remained weak during the quarter. The firm’s 3Q13 ad spend share dropped to 17.8% from 18.4% in 3Q12 and 18% in 2Q13.
Bt2/share net equity value erosion with the advent of digital TV
Assuming that MCOT were to win a standard-definition (SD) variety channel and a high-definition (HD) variety channel at the NBTC’s upcoming auction, we estimate that the SD channel would add Bt8.8/share and the HD channel would add Bt6.4/share of value to it. But its analog channel would be hit by the advent of digital TV. Assuming flattish ad rates for the analog channel in FY14 and a 4% mean annual decline in analog rates, FY15-17, we estimate that the equity value of its analog channel would decline by Bt17/share. The new digital licensing regime is likely to erode MCOT’s equity value by Bt2/share (Figure 8).
Note that we haven’t yet factored the anticipated net negative effect of digital TV into our model, but we have factored in upside from a digital Mux license of Bt5.2/share.