MCOT

MCOT Plc 

 

Poor earnings      

MCOT posted Bt39m in net profit for 2Q15, down 76% YoY but up 42% QoQ. The firm booked Bt21m from the sale of its Build-Transfer-Operate equipment to True Visions in 2Q15. Excluding such a one-time gain, core profit would be a surprising Bt18m, down 89% YoY and 35% QoQ. Net and core profits undershot our estimates by 23% and 39%, respectively, led by lower TV revenue, other income and higher-than-assumed tax expense. It posted a Bt5m operating loss (excl. other income) for two straight quarters. TV ad revenue (excl. new media) was 3% below estimate. After-tax profit undershot estimate by 34%. 

Result highlights 

The earnings deterioration came as the result of the ad revenue plunge (due to ad rate cuts, heavier ad spend competition and sustained weak consumption) and the dive in concession revenue (led by True Visions’ subscriber migration to its NBTC-acquired new license). Despite its the more efficient cost controls it applied in 2Q15, the scale of the revenue drop outweighed the fall of overall OPEX, leading to weaker earnings. Despite the gradual rating rises of its HD and Family Channels in 2Q15 caused by the program revamps (HD Channel in March and Family Channel in May), the effect of such revamps failed to translate into higher revenue in 2Q15, which has yet to be seen in 2H15.

The top line tumbled 21% YoY but rose 10% QoQ. TV ad receipts (excluding new media) dived 36% YoY but advanced 8% QoQ. Revenue from new media was Bt44m, down 39% YoY and 17% QoQ, because many C-band satellite channels that are broadcast through the MCOT satellite network discontinued their operations. Radio ad income remained solid—up 10% YoY and 18% QoQ. Concession revenue slumped 33% YoY (but gained 9% QoQ) It booked Bt66m in digital network rental revenue in 2Q15, up 27% QoQ.

Outlook

We estimate a Bt86m net profit for 3Q15, down 5% YoY but up 119% QoQ. The firm will book a Bt56m one-time reversal of provision for the Raisom court case, following the Supreme Court’s ruling in favor of MCOT that it need not pay Raisom Company that amount. Excluding that one-time gain, core profit would be Bt29m, down 68% YoY (led by sustained weak consumption) but up 61% QoQ (due to the low 2Q15 profit base and mild positive impacts from revamps). 

What’s changed? 

We maintain our FY15 net profit forecast unchanged, but cut the FY15 core profit forecast 22% to reflect weaker 2Q15 core earnings.

Recommendation

Our SELL rating stands, due to its weaker fundamentals. We doubt its long-term earnings recovery, as its content is weaker than its peers.