BEC World

BEC World Plc (BEC)
 

Investment thesis: We have downgraded our rating to HOLD, premised on BEC being fully valued, despite strong fundamentals. We expect good 1Q12 earnings and momentum should be sustained through much of the year, augmented by the 2012 UEFA EURO soccer tournament and the Olympic Games. Digital TV poses only an insignificant threat to BEC at this stage, given its strong TV content, but the advent of digital TV may limit the scope for ad rate rises among free-to-air TV channels. 
Solid 1Q12 profit expected: We estimate a Bt1bn net profit for 1Q12, up by 19% YoY and 45% QoQ. Stripping out a one-off item from 1Q11—Bt113m in early retirement expenses—core earnings would have risen by 5% YoY and 45% QoQ. The QoQ jump is due to a post-flooding ad spend recovery. The modest YoY increase is because of ad rate rises of 14% for Khao Sam Miti and Korean Series in March 2012, the 75% ad rate hike for a new program, Ching Roi Ching Lan, which replaced the Sunday movie, in Jan 2012 and broadcasting time extensions (10-22 minutes for four news shows in June 2011 and 15-30 minutes for early-prime and super-prime Thai dramas in March 2011).
1Q12 ad revenue rise: We conservatively estimate Bt3.2bn ad revenue, up by 8% YoY and 16% QoQ. Management guided for a 9% YoY increase in Jan ad income and a double-digit rise in Feb. Our 1Q12 revenue estimate for BEC is slightly above Nielsen’s 1Q12 ad spend number for the firm (up 6.5% YoY and 15.3% QoQ).
Record 2Q12 earnings likely: BEC should post a 2Q12 profit of Bt1.2bn, up by 18% YoY and 20% QoQ and a new record. The drivers are seasonality, pre-launch ads for the UEFA EURO 2012 soccer tournament (which runs June-July 2012) and the March ad rate increases, noted above.
Digital TV to squeeze future free TV ad rates? The firm plans to bid for NBTC licenses for at least two digital TV channels when auctioning opens (perhaps as soon as 4Q12). A licensing criteria draft is expected later this year. The NBTC is also likely to issue new satellite TV licenses in 2H12. In light of BEC’s strong content, we believe that it should be able to attract ad spend to digital TV channels, while the cannibalization between its free-to-air channel (Channel 3) and its future digital TV channels should be insignificant. However, digital TV will limit the scope for free-to-air TV broadcasters to increase ad rates.