Nation Multimedia Group

Nation Multimedia Group Plc
Closer and closer
Action and recommendation
- Maintain outperform rating with a fair price of 2.40 Bt/share. We still like NMG as one of our top picks in the Media sector given its plan to transition from a sunset industry (publishing) to a sunrise industry (broadcasting). By obtaining a digital TV license, NMG will be able to further penetrate the broadcasting business, which is 2.5-3 times bigger than the publishing business. Given the more intense competition in the digital TV auction than we had expected, there is a likelihood that NMG will obtain only one channel compared with our initial expectation of three channels. However, the value of the company with only one digital TV channel is Bt2.08share, which still provides lucrative upside from the stock’s current trading range.
Key investment points
- Earnings expected to stay at the same level QoQ but grow 46% YoY. Given our expectations for a subdued ADEX number for the past quarter, we believe that NMG’s top line will grow 5.9% YoY and 6.0% QoQ. The main driver of this modest growth is expected to be advertising from the publishing division, i.e. Krung-Thep Turakit and Kom-Chad-Luk. We believe that these two brands will continue to grow at a faster rate than the market, which grew 4.7% QoQ and 4.9% YoY in 2Q13. Net income is forecast to be slightly lower QoQ on a higher cost of goods sold but still grow 46% YoY.
- The picture for digital TV is clearer. On October 14th, the NBTC announced the leasing fee for digital terrestrial TV networks, which was on par with many companies’ projections but slightly lower than NMG’s forecast of Bt2-3mn per month for a standard definition type. This announcement should help potential bidders make more accurate projections and give them more confidence in the auction. After October 28-29, when bidders are required to submit their bid documents, the NBTC will consider the qualifications of each bidder and then announce the qualified contenders within 45 days. The auction will then be carried out within the following 30 days. Currently, from the latest announcement from NBTC, digital TV auction will be held in the middle of December this year.
- Expect to see less competition for news channels after the bid submission date. All the TV digital bidders are required to submit their bid documents to the NBTC during October 28-29. Each bidder has to place 10% of the reserve price for each channel type. Moreover, during that period, the bidders will have to choose either the HD variety or the news channel in the case that those entities have bought bid documents for both categories. Given this rule, we expect bid coverage in the news channel category to decline from 1.71x to 1.43x. In other words, the number of bidders competing for one of the 7 available news channels is likely to decline from 12 to 10. Therefore, we believe that NMG will definitely get at least one channel (a news channel). If worst comes to worst, meaning NMG obtains only one channel, its fair price will be Bt2.08, which still provides an attractive upside from its current trading range.
Price catalysts
- Digital TV auction