MCOT

Mcot Plc (MCOT)

Investment thesis
We recommend overlooking the expected flattish 1Q13 numbers and focusing on improved 2Q13 earnings. Furthermore, value will be enhanced by facility and network provider licenses in 2Q13 and two commercial digital service provider licenses in 4Q13. Our BUY rating stands, premised on: 1) solid FY13 earnings, 2) scope for upside from digital TV licenses and 3) a moderate dividend yield of 5-6%.
Anticipate a modest YoY profit rise for 1Q13
We estimate a Bt370m net profit for 1Q13, up 4% YoY but down 23% QoQ. The expected modest YoY rise is due to slightly higher TV and radio revenues and the corporate tax cut, which should have outweighed the effect of a jump in SG&A related to higher marketing and events expenses. The QoQ profit drop is due to first-quarter seasonality.   
TV ad revenue is estimated to have grown 5% YoY but dropped 15% QoQ (better than Nielsen’s number of a 7% YoY drop in MCOT’s 1Q13 ad spend). The January programming changes and ad rate rises (increases averaging 12% for 24 TV shows) wasn’t well received in Jan-Feb because advertisers waited to see viewership numbers. However, ad revenue improved in March. Moreover, some major client contracts didn’t expire till Feb or March. We estimate a mean TV loading factor of 77% (76% in 1Q12; 80% in 4Q12). 
Radio ad revenue should post a 5% YoY rise (but drop 23% QoQ) on a heavier marketing effort. We expect that revenue from new media jumped by 59% YoY and 20% QoQ, led by sub-leasing income from C-band and Ku-band satellite transponders. SG&A rose 18% YoY (but dropped 6% QoQ) on heavier marketing spend. There was Bt60m in revenue from a government project—The Government Savings Bank’s First Century—booked in 1Q13.
TV ad revenue to improve in 2Q13
We expect 2Q13 TV ad revenue to improve by 15-20% QoQ and 1-5% YoY on high season and stronger TV viewership ratings. TV ad revenue will resume a normal level in May-June. Moreover, we expect more government projects on a QoQ basis. Despite diminished expectations for 1Q13 earnings, the firm maintains its FY13 target ranges of 15-20% for the top-line and 15-17% for ad revenue. We project an 18% revenue expansion for FY13.
Digital network provider license expected in 2Q13
The NBTC will issue digital facility and network provider licenses to MCOT in 2Q13. We estimate that two digital network provider licenses would add Bt6/share to its value, assuming Bt0.8-1bn/year in rental revenue, a 20% net margin and 9-10% boost to annual net profit.