MCOT

MCOT Plc 

Investment thesis

MCOT’s proportionate market shares of ad spend and audience (including digital TV) have been declining since the launches of its two digital TV channels (due largely to weak programming), causing its fundamentals to deteriorate. That deterioration together with the revenue loss caused by True Visions’ subscriber migration from the MCOT concession to its new NBTC license prompted us to revisit our FY14-15 earnings projections. The operational risks are intensified by the fact that the firm still has no CEO or CFO; it may take six months to fill the two positions. Our SELL rating stands, premised on a weak 2H14-FY15 outlook and organizational leadership issues.

Insights into 3Q14—earnings tumble 

We estimate a Bt100m net profit for 3Q14, down by 73% YoY and 38% QoQ. The earnings dive is attributable to the ad revenue drop (related to weak broad consumption and a lower audience share), a plunge in concession revenue (due to True Visions’ migration of subscribers from the MCOT concession, which expired in Sept 2014 to its NBTC-licensed subsidiary) and greater service costs (license fee amortization expenses of Bt67m/quarter and production costs). TV ad revenue is assumed to have plunged 32% YoY (flattish QoQ)—much worse than Nielsen’s estimate of a 17% YoY slide. Radio ad revenue is likely to post slippage of 5% YoY (but an 8% QoQ rise).

MCOT’s mean 3Q14 TV loading factor is likely to be reported at 73% (82% in 3Q13; flattish QoQ). Its total audience share (including digital TV) dropped further for the quarter—6.0% against 6.4% in 2Q14 and 7.7% in 3Q13. The firm’s market share of ad spend (including digital TV) also declined—13.4% in 3Q14 against 16.3% in 2Q14 and 17.8% in 3Q13. The lower shares of ad spend and audience were due to weak analog and digital TV programming (the July revamp will take time to prove higher ratings—assuming that it does). We model for a concession revenue plunge of 35% YoY and 24% QoQ. 

Further drops in audience share—both analog and digital

Nielsen’s new ad spend and audience share statistics indicate that MCOT’s share of audience (including digital TV) dropped from 7.1% in April 2014 to 6.6% in Sept. Moreover, its market share of ad spend (including digital TV) slumped from 18.4% in April to 12.3% in Sept. 

The audience share of its standard-definition (SD) digital channel was flat at 0.1% during July-Sept, while the SD digital channel’s share of ad spend dropped from 4.9% in July to 0.6% in Sept (due to weak digital programming). The audience shares of other digital TV operators (excluding existing free-to-air TV channels) jumped from 4.5% in April 2014 to 28.3% in Sept 2014. MCOT has clearly lost both audience and ad spend share to other digital TV channels.