BEC World

Bec World Plc (BEC)

3Q12’s profit escalates continuously 2%qoq and 22%yoy
Advertising spending in 3Q12 dropped from the prior quarter by 2%,
while concert and copyright income plunged 51.2%qoq from 2Q12 in
which there was a big concert of Lady Gaga. As a result, selling and
service income decreased by 8%qoq. However, with better cost control,
gross margin increased from 52.5% in 2Q12 to 56.5%, while
SG&A/sales stayed flat from the prior quarter. Consequently, net profit
in 3Q12 shifted 2% to B1,269m, better than expected.

Up 2012-2013’s forecast average by 5.5% to reflect surprising profit
Due to surprising profit in 3Q12, net profit in the quarter comprises 80%
of our FY2012’s forecast. At the same time, net profit in 4Q12 would
soften only slightly from 3Q12 as income is projected to stabilize while
selling and administrative expense in the 4th quarter of every year is
usually higher than normal from accounting entry adjustment and
employee bonus. Meanwhile, BEC is trying to increase the income base
continuously through TV program reshuffle and advertising rate increase
for popular programs. In addition, in 2013 the company will cancel the
0.5 minute free advertising slots for Thai drama re-runs that it had given
to buyers of every 1 minute advertising slots for super-prime Thai
dramas. Moreover, it has a plan to buy copyright of popular international
game shows for making the Thai versions and airing during 5.45 – 7.45
pm of every weekend throughout the year after getting a great success
from The Voice and Got Star Talent. Accordingly, we revise up our net
profit forecast for 2012-2013 average by 7% each year. Under the new
forecast, 2012’s net profit will be B4,795m, increasing 35.8%, with a
continued growth of 12% in 2013.

Only 7.9% upside left. Higher competition in long run
Reiterate Hold
2013’s fair value under the new forecast (DCF) is B61.5/share,
implying 7.9% upside from the current share price, with
dividend yield of above 4%. In the long run, however, the
company will be facing higher competition after the NBTC starts
an auction for a 24-channel digital TV license in the middle of
the year. It is believed that BEC would join the auction to
protect its future market share even though the NBTC allows
free TV operators to broadcast through an analog system until
2022 or until BEC’s concession expires in March 2020 and allows
a test run of simultaneous broadcasting via both digital and
analog systems. We recommend “hold to receive dividend”.