BEC World

BEC World Plc (BEC)

Investment thesis: We believe the launch of new free-to-air digital TV channels, starting late 2013, presents a clear threat to BEC’s enviable profit growth profile—competition for ad spend will intensify and audiences will have more TV stations to choose from. As such, BEC will probably lose some of its current share of viewership to new operators, in which case its multiples would be expected to slip somewhat. Our HOLD rating stands. 
Record 2Q12 earnings: We estimate a Bt1.2bn net profit for 2Q12, up by 18% YoY and 9% QoQ. The assumed QoQ rise was due to seasonality and ads for the EURO 2012 soccer tournament. The YoY increase was fueled by the headline corporate tax rate cut to 23%, well-controlled OPEX and greater ad revenue. BEC started reclaiming 450 free minutes/month of ad slots for Thai drama re-runs that it had given to buyers of super-prime Thai drama slots. There were no ad rate increases in the quarter, but 2Q12 earnings would have benefited from ad rate rises of 14% for Khao Sam Miti and Korean Series in March 2012 and 75% for Ching Roi Ching Lan in Jan 2012.
Modest 2Q12 ad revenue rise: We estimate Bt3.4bn in ad revenue, up 7% both YoY and QoQ. The relatively modest YoY growth is due to the high 2Q11 base comparison. Our 7% YoY top-line growth estimate is close to Nielsen’s 2Q12 ad spend number for the firm (up 7.6% YoY and 6.8% QoQ).
One concert in 2Q12: BEC was co-promoter of the Lady Gaga concert in May. But because it was co-promoter, the payout was half what it would have been if BEC had had Lady Gaga to itself.
Deserves such a big premium? Channel 3 has strong content, arguably the best of any broadcaster, so its ad rates should be the most resilient to the impact of new competition from digital TV next year of any of the existing operators. But having said that, in other markets where digital TV has debuted, the bottom-lines of established broadcasters have been squeezed. The outlook is for greater audience segmentation and weaker bargaining power with ad buyers across the industry. BEC will probably continue to trade at a premium to its peers, but the mean sectoral PER is likely to drop somewhat.