MCOT

MCOT Plc 

 

Investment thesis

We are skeptical that MCOT’s new September program revamps and channel rebranding, all directed by a new management team, can boost ratings and ad revenues of its two channels and bring in the leaner overall cost structure in 4Q15 through to FY16. Those positive implications have yet to be proven and we believe that MCOT would find it very difficult to regain ratings and market share amid the more intense digital TV competition. Meanwhile, we have cut our FY15-16 earnings projections further to reflect the diminished FY15-16 earnings expectations. We have rolled over our target price to YE16 and derived our new target price of Bt8.75. Our SELL rating stands.   

Insights into 3Q15—core earnings dive  

We assume a Bt64m net profit for 3Q15, down 29% YoY but up 64% QoQ. Excluding a Bt56m one-time reversal of provisions for the Raisom court case, core profit would be Bt8m, down 91% YoY and 57% QoQ. This new core earnings estimate is lower than our previous Bt29m. The assumed diminished 3Q15 expectations are due to greater-than-estimated service costs. The core earnings plunge is thanks to the tumble in ad revenue (weak consumption, greater competition from digital players and its further loss of market share despite greater state project revenue), the radio revenue dip and the sustained high OPEX (related to its channel rebranding and program revamps in September). 

It secured a Bt40m public relations state project in 3Q15, of which Bt10m revenue is recognized in 3Q15. We expect its TV revenue to plunge 30% YoY but rise 5% QoQ and its radio revenue to dip 3% YoY but rise 1% QoQ. Concession revenue will stabilize (down 1% YoY and 2% QoQ). Digital network revenue should have jumped 159% YoY and 14% QoQ, led by one new government client in July. We assume a GM of 23% in 3Q15, against 34.9% in 3Q14 and 27.6% in 2Q15.  

Further FY15-16 earnings cuts   

We have cut our FY15 net profit forecast further by 19% (to Bt160m), its FY15 core earnings forecast by 31% (to Bt83m) to factor in the diminished 3Q15 earnings expectations and our FY16 net profit forecast by 18% (to Bt173m) to reflect the slower revenue recovery momentum and its greater OPEX than assumed in FY16. We are skeptical over the positive impacts from its September revamp, rebranding and new management team on 4Q15-FY16 revenue and its leaner overall cost structure in FY16.   

Slight rating drop for its HD channel in Aug-Sept 2015 

The average rating (4 years+ nationwide) for its HD Channel (simulcast with its analog channel) dipped from 0.220 in July to 0.211 in September, while that for its Family Channel was stable at 0.040 during July-September 2015. This proves that its program revamps at its HD Channel in March and at its Family Channel in May 2015 has failed to deliver the long-term sustainable rating rises. The September revamps have yet to prove the rating rises in 4Q15 through to FY16.