BEC World

BEC World Plc (BEC)

Above our model
BEC reported a Bt1.39bn net profit for 4Q13, up 20% YoY and flattish QoQ. It was 9% above our estimate, due to higher ad revenue and a fatter GM than assumed. Ad revenue during the quarter exceeded our estimate by 3% and gross profit was 6% above our model. GM was 54.7% (52% in 4Q12); we had assumed only 53.5%. 
Result highlights
The YoY profit jump was led by higher ad income from a 15-minute extension of the super-prime soap opera slot in July 2013, ad rate increases in January and May 2013, better OPEX control and the headline corporate tax cut. There were no ad rate increases in 4Q13.
Ad revenue was Bt3.81bn—up 9% YoY but down 1% QoQ—close to Nielsen’s number (up 10% YoY but down 1% QoQ). Income from concerts & shows dived by 38% YoY and 51% QoQ, as the political chaos caused some events to be canceled. But concerts & shows’ gross number turned around QoQ from a Bt52m gross loss in 3Q13 to a Bt5m gross profit in 4Q13 (BEC Tero posted a huge loss on the Sonic Bang 2013 Music Festival in 3Q13).
Outlook
January ad revenue dipped 1% YoY, due to the consumption slowdown, which has been exacerbated by the political chaos (Nielsen estimated a 4% YoY drop in BEC’s ad income for Jan). We expect 1Q14 ad revenue to be flattish YoY (a 1-2% YoY rise under the best-case scenario). If the political chaos were to persist into 2Q14, we would expect big clients to continue spending with BEC for prime-time slots, but small clients would probably cut ad spend. BEC’s top-20 customers make up 40% of its ad revenue. The firm announced ad rate rises for 20 non-prime shows during Jan-Feb 2014. We preliminarily estimate a Bt1.3bn net profit for 1Q14, down by 6% YoY and 7% QoQ.
Management declined to offer any details of its digital TV plans and marketing strategy, due to the delay to BEC’s inaugural digital broadcast to July 1, 2014 (trial runs will start in April) and the ambiguity of the “must-carry” rule. The firm is currently selecting programming for its three digital TV channels. BEC estimates Bt10bn in CAPEX for digital TV (Bt6bn in spectrum bidding fees for three licenses, the remainder for equipment and network costs) for the 15-year licenses. We expect the firm to initially simulcast some of its analog channel programming on its digital TV platform during the start-up period; new content will be added to the digital channels during the six months following their launches.
What’s changed?
Our FY14 net profit forecast stands unchanged.
Recommendation
We have a TRADING BUY rating on BEC, as its strong content makes it resilient to the worst of the effects of lower ad spend budgets.