GMM Grammy

GMM Grammy Plc (GRAMMY)
Above estimate: GRAMMY reported 1Q12 net earnings of Bt146m, down 13% YoY but up 554% QoQ. Stripping out a Bt33m gain from an asset sale in 4Q11, core profit posted a turnaround from a Bt10m core loss in 4Q11. The reported 1Q12 bottom-line exceeded our estimate by 22%, thanks to higher-than-modeled satellite TV and events revenue. GM was also fatter than modeled—37% versus 36%.
Results highlights: The QoQ jump was attributable to the post-flooding ad spend recovery, the effects which were obvious across almost all business units. Profit fell YoY because higher OPEX overwhelmed the effect of increased revenue, especially operating costs for the GMM Z satellite TV operation. All business units except music, TV and publishing posted YoY rises—showbiz (up 8% YoY), radio (up 4% YoY), satellite TV (up 120% YoY) and events and movies (both up 92% YoY).
Satellite TV posted the strongest revenue growth, led by recognition of sales of GMM Z set-top boxes. Showbiz revenue rose by 8% YoY and 32% QoQ, as concerts postponed by the 4Q11 flooding were rescheduled to 1Q12. There were eight concerts in 1Q12 against two concerts and one stage play in 1Q11. The jump in movie revenue was due to the box office success of ATM Er-Rak Er-Ror, which grossed Bt150m. The surge in events income was driven by recognition of payment for organizing the BOI Fair.
Outlook: We forecast a Bt200m net profit for 2Q12, down 20% YoY but up 37% QoQ. The expected YoY fall is due to heavy marketing expenses and other OPEX related to the launch of the GMM Z satellite-platform in April. The QoQ jump is fueled by second-quarter high season and pre-EURO 2012 soccer advertising (the tournament runs June-July). We anticipate earnings deterioration during 3Q12-1H13, as GMM Z will initially post losses and there will be heavy costs related to the launch of a TV home-shopping channel in June 2012 (a joint venture with a Korean firm.  
What’s changed? Our FY12 net profit forecast stands unchanged.
Recommendation: We have downgraded our rating from HOLD to SELL because of valuation stretch. GRAMMY’s PERs are 24x for FY12 and 22x for FY13 against a long-term mean of only 15.5x.