BEC World Plc

BEC World Plc

Investment thesis
Our TRADING BUY rating stands, premised on solid FY13-14 earnings profiles. We doubt that BEC’s valuation will continue to command its current premium, given that 24 new commercial digital TV channels will launch next year. But we don’t expect digital TV to impact on BEC until FY15-16 and, in any case, it will have the competitive advantages of an established position and superior programming.
Expect record 3Q13 revenue and earnings
We estimate a Bt1.45bn net profit for 3Q13, up by 14% YoY and 2% QoQ. The expected YoY rise is due to higher ad income and receipts from concerts and shows, better OPEX control and the headline corporate tax cut. The marginal assumed QoQ increase was led by OPEX control. We assume Bt4.2bn in ad receipts for 3Q13—up by 11% YoY and 1% QoQ—driven by the 15-minute extension of the super-prime Thai soap opera slot in July 2013, a 67% ad rate jump for Krua Khun Toy, effective May 2013, and a mean ad rate rise of 15% for 30 shows, effective Jan 2013. Our 3Q13 ad revenue assumption is close to Nielsen’s estimate for BEC of 10.7% YoY.
Revenue from concerts and shows should post a 109% YoY rise (but a 10% QoQ drop)—Ronan Keating Fire Live 2013, Sonic Bang 2013, Barbie Live on Stage and Justin Bieber Believe Tour—against The Phantom of the Opera and three small concerts in 2Q13 and the 100 years of Titanic event in 3Q12 (which incurred a Bt16m gross loss). We assume GM of 54.9% (53.9% in 2Q13 and 56.1% in 3Q12).
Stable audience share but ad spend share rose YoY in 3Q13
BEC’s 3Q13 audience share was flattish YoY and QoQ—33.8% against 34.3% in 3Q12 and 33.9% in 2Q13. Ratings for its super-prime soap operas remained strong. The firm’s 3Q13 ad spend share was stable QoQ but rose YoY—29.9% against 27.2% in 3Q12.
Bt4/share net equity value erosion with the advent of digital TV
Assuming that BEC were to win one standard-definition (SD) variety channel and one high-definition (HD) variety channel, we estimate that the SD channel would add Bt5.3/share and the HD channel would add Bt3.4/share of value to it. But its analog channel would be negatively impacted by digital TV.
Assuming flattish ad rates for the analog channel in FY14 and a 2% mean annual decline in analog rates, FY15-17, we estimate that the equity value of its analog channel would slip in the region of Bt13/share. The new digital licensing regime is likely to result in Bt4/share of equity value erosion to BEC.
Note that our model currently assumes a 3% increase in mean ad rates from FY14—we haven’t yet factored the anticipated net negative effect of digital TV into our model. We will update our forecasts after the results of the digital channel license auction are announced.