MCOT

MCOT Plc  

Investment thesis
Following our visit to MCOT, we feel more positive about its fundamentals. Its operation has improved since September, while internal risks have diminished with a new president in place. Future upside will come from digital network provider and channel provider licenses, an outdoor media JV with the MRT and the project planned for a 50-rai plot at Ratchadapisek junction. We have upgraded MCOT from HOLD to BUY with a YE13 target price of Bt43, premised on: 1) diminished internal risks, 2) an improved operation in 4Q12 and beyond, 3) incremental value creation from projects and plans and 4) the cheapest PER and the highest dividend yield in the sector.      
New president appointed
Mr Anek Permwongseni started working as president of MCOT on Oct 1, 2012. He will execute a five-year business plan which involves a radio frequency-return plan, a contingency plan for the expiry of TRUE Visions’ satellite-platform concession in Sept 2014, a business plan for a terrestrial digital TV platform, revamps of TV and radio operations, plan to ramp up special project revenue and progress on the Ratchada junction project. We expect the share price to recover with the new president in place with a clear mandate. 

Upside from mulitplex provider licenses
MCOT plans to apply for one facility provider license and 2-3 multiplex provider licenses from the NBTC in Dec 2012. We estimate the investment in multiplexes and towers at Bt3-4bn (Bt1bn for towers). If the firm were to acquire two multiplex provider licenses and rental revenue were Bt2.5-3m/month/channel, we would estimate Bt840m-Bt1bn in annual revenue (12-13% of the top-line) in FY13-15. Assuming a net margin of 20%, the licenses would boost net profit by 9-11%.

Upside from five digital channel licenses
The firm plans to bid for five terrestrial digital TV channel licenses which it estimates will cost Bt500-600m per channel (Bt2.5-3bn in total). It targets a 3-5 year payback period. We expect the digital TV channels to start broadcasting in 2015 when the digital networks and towers are fully in place (90% population coverage in 2015). We estimate a net margin of at least 30%.

Upside from the outdoor media JV with MRT
MCOT is negotiating with the MRT to form a JV to manage outdoor media (billboards) for MRT stations. We expect Cabinet to approve the project in 1H13.   

Very cheap valuation and very high yield
The stock trades at an FY13 PER of 12x, the cheapest in the Media sector, and offers the highest dividend yield in the sector of 8%. Now that MCOT has a president, it should rise toward the Media mean PER of 19.5x.