VGI Global Media

VGI Global Media Plc (VGI)

Investment thesis
VGI’s recent share price retreat presents a buying opportunity on the stock, as its sales and profit growth remain on-track. We are still bullish the outlook for 1Q13/14 and beyond, premised on strong ad bookings and scope for ad space price rises. As we have factored in a 9% dilution effect from the stock dividend—due to be tradable in July—we have cut our end-March 2014 target price to Bt140 from Bt153. However, the current valuation implies a fully diluted PER of 26.6x and PEG of 0.5x—cheap compared with the peer average of 0.6x. BUY!
Ad spend on unconventional media continues to rise strongly
Nielsen reported a 2% YoY decline in total ad spend for May; the figure was dragged down by conventional media (newspapers, magazines and cinema). However, unconventional media platforms posted robust growth—10% for in-store and 14% for transit. VGI’s in-store ad revenue looks to have been even better, as bookings for April-May jumped about 40% YoY, driven by consumer goods brands and mobile operators.
35 new bogies to start generating revenue in August
The new bogies have yet to start booking advertising income. VGI plans to adjust ad sales packages after installing ads in the 35 bogies, which we expect to be finished within the next two months (late 2Q13/14). Given that the occupancy rate for BTS is high (two big customers booked ad space through to YE13) and BTS ridership continues to increase (so ad viewership is rising), the firm is likely to raise advertising rates in 3Q13/14 by at least 5%, we believe. Note that VGI has historically raised ad rates by an average of 5% annually (and by 10% some years).
Profit will continue to grow in 1Q13/14 …
We anticipate 1Q13/14 earnings of Bt283m, up by 77% YoY and 26% QoQ. The explosive expected YoY earnings growth is led by rising ad revenue across all media platforms and GM expansion of 684 bps to 54% (because of lower revenue-sharing obligations to BTSC). The QoQ increase is due to greater ad receipts for in-store media and office buildings coupled with a lower SG&A/sales ratio.
…and sustain expansion through following quarters
VGI should report QoQ earnings growth through to 3Q13/14 (Oct-Dec). We expect revenue from transit media to rise QoQ in 2Q13/14 on seasonality and anticipate that GM will fatten on a greater proportion of high-margin (BTS) media in the sales mix. Earnings will peak in 3Q13/14, boosted by higher ad rates with the commercial run of 35 new bogies and increasing ad spend across all media platforms during high season.