Plan B Media

Plan B Media Plc 

2Q16 net profit was Bt111mn, down 16% YoY but up 83% QoQ, in line with SCBS and consensus estimates. The YoY fall reflected primarily a mismatch between rising cost and stagnant sales: It has steadily added capacity, particularly digital, but the bumpy economy has made it difficult to fill up the spots, leading costs to grow more rapidly than revenue, shrinking gross margin and profitability. 1H16 earnings equal 41% of our full-year forecast and we leave it unchanged on expectation of an improved economy in 2H16, enabling it to fill more of its idle capacity. 

 

2Q16 highlights:

 

- Revenue was Bt607mn, up 8% YoY and 10% QoQ, mostly from Hello Bangkok, since PLANB itself is still having difficulties filling its capacity, especially static and digital capacity. 

 

- Gross margin expanded to 34% in 2Q16 from 27.6% in 1Q16. Seasonality helped drive up revenue QoQ but higher costs from expansion narrowed gross margin from 43.4% in 2Q15. 

 

- SG&A/sales rose to 14.2% in 2Q16 from 13.7% in 1Q16 but was fairly stable YoY, indicating better control. 

 

- Effective tax rate shrank to 12% from 21% in 1Q16 and in 2Q15 as government policy allowed it to expense this year’s capex for tax purposes. This policy will be in place for five years, allowing 2016 capex to be expensed for the next five years, reducing its tax expenses in the period. 

 

Buy. Though share price has corrected on fears of the effect of the economic slowdown, in our view, ad spending is at the tail end of the down cycle. We expect PLANB to be hurt just this year and have already included it in our 2016 earnings forecast, expecting flat earnings from 2015. We prefer to look beyond this year and see PLANB as a growth stock as it continues to expand, with earnings growth back on track next year. We note that earnings growth in 2017 will be even higher than forecast, since revenue from its new football business is not yet in our 2017 model.