MCOT

MCOT Plc

 

Investment thesis

Although its earnings and share price look set to bottom out in 1H15, with an anticipated recovery in 2H15, we are skeptical over the scale of MCOT’s 2H15-FY16 recovery and the sustainability of rating rises of its HD and Family channels in the long term. With another cut to our FY15 earnings forecast, its valuation is now no longer cheap while its dividend yield is unattractive. Its long-term competitiveness with other digital-only players remains in question. Our SELL rating stands, premised on weak fundamentals, unattractive valuation and yield.   

Ratings recovery for MCOT’s HD Channel in May 

The average rating (4 years+ nationwide) for its HD Channel (simulcast with its analog channel) improved from 0.207 in April to 0.236 in May and 0.295 in June, led by the program revamp at its HD Channel in March and the one-time event of the SEA Games live broadcasts in June via the TV pool network’s six analog channels. The rating for its Family Channel regained from 0.007 in Feb to 0.015 in March and 0.035 in June, thanks to the content revamp in May. It further rose slightly to 0.037 during July 1-19. We think that the ratings gains at two of its channels should prove to be a short-term phenomenon and will not be sustained in the long term given its weaker content and higher price than its peers. The scale of a MoM improvement for its Family Channel is still marginal, we believe.

Insights into 2Q15—core earnings plunge 

We assume a Bt50m net profit for 2Q15, down 69% YoY but up 84% QoQ. Given that there is currently no clarity over the accounting method for the recognition of a one-time gain from True Visions related to its Build-Transfer-Operate equipment buyback from MCOT, we assume the conservative scenario that MCOT would book such a gain amounting to Bt21m in 2Q15. Excluding such one-time gain, core profit would be Bt29m, down 82% YoY but up 7% QoQ. 

The YoY core earnings plunge is attributable to the significant drops in ad revenue (sustained weak consumption and its ratings drop) and concession revenue (True Visions’ migration of subscribers from the MCOT’s concession to its NBTC-licensed subsidiary) as well as the rises in OPEX related to the revamps of its two channels in 2Q15. The QoQ rise is attributable to the second-quarter high season. We expect TV ad revenue to tumble 34% YoY and concession revenue to dive 39% YoY for 2Q15. However, its radio ad revenue should have remained solid, up 10% YoY. We assume a GM of 26.9% in 2Q15, against 39.5% in 2Q14 and 24.8% in 1Q15.   

Further FY15 earnings downgrade  

We have revised down our FY15 net profit forecast by 49% (to Bt204m) and its FY15 core earnings forecast by 54% (to Bt183m) to factor in the anticipated weak 2Q15 earnings and the slower 2H15 earnings recovery caused by slow progress in a broad consumption recovery.