BEC World

BEC World Plc (BEC)
 

Above estimate: BEC reported a Bt1.1bn net profit for 1Q12, up by 32% YoY and 60% QoQ. Stripping out Bt113m in one-time early retirement expenses in 1Q11, core profit rose by 16% YoY and 60% QoQ. It exceeded our model by 10% due to lower-than-estimated OPEX. Service costs were 3% below our number and SG&A 7% lower. Ad revenue was in line with our estimate.
Results highlights: The QoQ core earnings jump was due to a post-flooding ad revenue recovery. The YoY core profit rise was driven by ad rate increases (14% for Khao Sam Miti and Korean Series in March 2012 and 75% for a new show, Ching Roi Ching Lan)—and broadcasting time extensions for news, early-prime and super-prime Thai dramas in 2011. Ad revenue was Bt3.16bn, up by 8% YoY and 16% QoQ and a new record (slightly higher than Nielsen’s 1Q12 ad spend number for BEC).  
Outlook: Management indicated that 2Q12 ad revenue will post only modest YoY growth, due to the high 2Q11 ad revenue base comparison. However, 2Q12 ad revenue and net earnings are still likely to set new records. There won’t be any ad rate increases in 2Q12, but BEC will start reclaiming 450 free minutes/month of ad slots during Thai drama re-runs that it had distributed to buyers of super-prime slots (previously, ad buyers of one minute of a super-prime Thai drama slot would get one free TVC minute on the re-run of the show).
Management is confident that BEC won’t be negatively impacted by the rise in popularity of satellite TV, as BEC has superior content. We estimate a 15-20% YoY profit increase for 2Q12, due mainly to the lower headline corporate tax rate. The reclaiming of 450 free minutes/month of re-run ad slots may possibly boost the top-line by 3-4%.
What’s changed? We have revised up our FY12 profit forecast by 7% to reflect greater-than-modeled 1Q12 earnings and upped our YE12 target price by 6% to Bt50.
Recommendation: Our HOLD rating stands. There is some long-term risk in that BEC might find it more difficult to raise ad rates when digital TV comes into play. Hence, its long-term growth profile is a bit cloudy. Any delays to the auctioning of digital terrestrial TV broadcasting licenses would boost BEC’s outlook.