MCOT

MCOT Plc 

Poor core earnings, as modeled       

MCOT posted Bt72m net loss for 4Q15, 92% YoY deeper in the red and a reversal from a B63m 3Q15 net profit. The extra items included 76m altogether in 4Q15 for bad debt provision (Bt39m) and the expense (net of tax) from a change in accounting practice for digital TV licenses (Bt37m) and Bt91m altogether in 4Q14 for restated investment impairment (net of tax) in True Visions (Bt60m) and the extra expense (net of tax) from a change in accounting practice for digital TV licenses (Bt31m). Core profit for 4Q15 was only Bt4m, down 93% YoY and 47% QoQ. Net profit undershot our model by 81%, led by higher extra expense from a change in a digital TV license accounting practice. However, core profit was in line with our estimate. It posted a Bt38m operating loss (excluding other income) for four straight quarters. 

Result highlights 

The core earnings tumble was caused by the TV ad revenue drop (related to sustained weak consumption and spending as well as greater ad-spend competition from other digital players), the decline in radio and new-media revenues and the sustained high service costs. We noticed continued control of SG&A expenses in 4Q15 (staff and production costs). The HD Channel revamp in Sep (under the slogan Perd Loke Kwang, Sang Kwam Sook) failed to yield any significantly positive impacts on revenue or ratings in the quarter. 

The top line tumbled 9% YoY but inched up 1% QoQ. TV ad receipts dropped 22% YoY and 4% QoQ. Revenue from new media dropped 30% YoY (but rose 9% QoQ) due to the decline in number of C-band transponder renters. Radio ad income declined 8% YoY but rose 6% QoQ. Concession revenue rose 12% YoY and was flattish QoQ. Its digital network rental revenue jumped 156% YoY and 8% QoQ, spurred by its new client (the Parliament TV channel) effective from 3Q15. 

Outlook

We project a Bt10m core profit for 1Q16, down 63% YoY (led by weaker domestic consumption and ad spend, which will lead to a drop in the TV ad revenue), but up 150% QoQ (due to the low 4Q15 core profit base comparison and some positive impacts of the Sep program revamp and the “cross media” co-operation with content providers such as True Visions, Nation and Now TV to produce new shows in 2H15). 

What’s changed? 

We cut our net profit forecast by 24% for FY16 (to Bt77m) and by 25% for FY17 (to Bt89m) to factor in a Bt24m in extra expense related to an accounting change in digital TV license and greater production costs.  

Recommendation

Although there is a share price catalyst due to the future compensation received from the NBTC in returning some portion of its 2600MHz frequency, such proceeds will be reinvested in its TV business, which has so far proven unsuccessful. Our HOLD rating stands for MCOT.