Mono Technology

Mono Technology Plc (MONO) 

Investment thesis

We remain optimistic over MONO’s FY15 business growth story (despite a diminished expectation for 4Q14 earnings, due to a seasonal rise in SG&A), led by its digital TV business. The expected weak 4Q14 bottom-line isn’t of significance. Looking forward, an MVAS revenue recovery and digital TV income expansion will fuel profit growth over the next two years. Our SOTP-derived YE15 target price is Bt6.50. BUY!

4Q14 net profit forecast trimmed …

A Bt20m net profit is now expected for 4Q14; we previously forecast Bt27m. Our diminished 4Q14 expectation is due to heavier SG&A expenses tied to seasonally higher staff expenses. As such, we have cut our FY14 net profit estimate to Bt85m from Bt92m. However, we maintain our top-line projections of Bt1.5bn for this year (up 8.7% YoY) and Bt2.8bn for FY16 (up 86% YoY) and expect a fatter GM of 41.7% in FY15 (we assume 34.2% for FY14). Our model indicates Bt80m in digital TV revenue in 4Q14 (assuming a mean ad rate of Bt4.5k/min), up 300% QoQ.

…but prospects for years ahead are great

MONO will realize a full-year of receipts from its digital TV business in FY15. We project that its digital TV business will turn profitable in 2H15 (but still expect it to post a loss of Bt150m for FY15 as a whole, shallower by 73%), led by a 300% increase in the expected mean net ad rate to Bt20k/min and a higher TVC utilization rates of 55% for the year.

The MONO29 channel’s mean audience share jumped from 0.28% in May 2014 to 3.3% in Jan 2015, and its rating (among all digital channels 15+ nationwide) rose to 0.25 in Jan 2015, which ranked it third (excluding analog channels), just behind GRAMMY’s ONE HD and RS’s CH8. We expect its rating to rise to 0.3 in Feb 2015.

Bottom-line expected to ramp up significantly in FY15-16

We anticipate that the revenue structure will shift from MVAS (from 73% of the FY14 top-line to 40% of FY15 revenue) to a greater digital TV weighting (from 8% of total revenue in FY14 to 30% in FY15). Digital TV business receipts will jump 1,031% YoY to Bt1.14bn in FY15, our model indicates, driven by higher ad rates and utilization rates. Thus, we forecast that consolidated earnings will shoot up by 309% YoY to Bt347m for FY15 and by 94% YoY to Bt673 for FY16. Note that we expect the digital TV business to post net losses of Bt552m for FY14 and Bt150m for FY15, then a turnaround to a net profit of Bt262m for FY16.