MCOT

 

 

-We maintain an Outperform rating on MCOT but cut our target price to Bt36 from Bt44.  While we have cut our growth forecasts to reflect falling ratings, we still view MCOT as attractively valued:  the stock is the cheapest in the sector (11x fwd PER) and offers the highest yield (8%).

Impact

- Falling ratings, lower pricing power: We cut our advertising revenue growth forecasts to reflect MCOT’s slip in ratings (Fig 2). Over the past 6 months, the company’s Channel 9 has seen its audience share among free-to-air TV fall to c.8% from the 9-10% range it had been able to maintain in previous years. While part of the ratings loss may be due to competition from satellite and cable operators, we believe it is also due to the failure of MCOT’s program reshuffle to maintain existing viewers. This has hurt the company’s ability to maintain and increase prices. Nonetheless, we still expect the company to benefit from growth in advertising spending, which continued to pick up pace in July.

- Higher costs a bigger worry: While revenue has been flat, costs have gone up substantially. 1H12 cost of sales grew 16% and was much higher than our expectation. The biggest increase came from production expense, which grew 30% YoY in 1H12, followed by a 9% increase in personnel expense. While we expect cost increases to moderate in coming quarters as the program reshuffle finishes and the impact of wage hikes wane, we have factored in higher cost growth over the next two years (Fig 2).  

- Valuation and yield remain attractive: While we have cut our earnings and target price significantly, we believe the stock remains attractive at current levels. This is because the low-risk assets (concessions, net cash, and investment property) still make up Bt15/sh, equivalent to over 50% of the current share price.

Earnings and target price revision

- 2012-14E EPS cut by 6%, 12% and 17% due to lower revenue growth and higher costs. TP cut from Bt44 to Bt36.

Price catalyst

- 12-month price target: Bt36.00 based on a DCF methodology.

- Catalyst: Monthly adex, rate hike, quarterly results

Action and recommendation

- We believe MCOT’s current share price already reflects lower growth expectations.  The stock remains attractively valued at 11x fwd PER especially when compared to sector peers’ 15-19x.  MCOT also offers a dividend yield of 8%. We maintain our Outperform rating on the stock but cut our TP to Bt36.