BEC World

Investment thesis

BEC has lost audience (on Channel 3) and ad spend (on both Channel 3 and digital channels) to competing digital TV operators since its commercial digital launch in June 2014. We believe that the advent of digital TV platforms constitutes a threat to future ad revenue. As such, more bundled sales and deeper discounts to listed rates are likely in FY15. In light of intensifying competition for ad spend in the face of a weak economy, our SELL rating stands. 

Insights into 3Q14—the earnings drop

A Bt1.05bn net profit is expected for 3Q14, down by 25% YoY and 11% QoQ. The assumed profit tumble is due to lower ad receipts—a weak consumption climate, drops in the shares of ad spend going to both BEC’s analog and digital TV channels—and heavier digital-related OPEX. Because of concerns over Channel 3 possibly not being carried by pay TV operators (tied to the NBTC’s “must-carry” rule), advertisers cut ad budget allocations to Channel 3. We assume that ad spend revenue for super-prime and early-prime soap opera slots slipped in 3Q14. GM is estimated at 46.1% in 3Q14, against 51.9% in 3Q13 and 48.3% in 2Q14. 

We assume Bt3.78bn in 3Q14 analog ad receipts, down by 1% YoY and 1% QoQ (Nielsen’s slippage estimate was 2% YoY and 1% QoQ). Moreover, digital ad income would have been negligible (Bt30m/month) in 3Q14, due to a lower share of digital ad spend for BEC. Revenue from concerts & shows should have dived by 86% YoY (but rose 38% QoQ)—the state of the economy remains weak and martial law may have discouraged some groups from holding events. Only two concerts were held in 3Q14—Tofu Music Festival 2014 and Slot Machine and First Contact. We assume Bt108m/quarter in license fee amortization and that digital programming and production costs rose in 3Q14.

BEC’s ad spend and audience shares declined in 3Q14

Nielsen’s latest ad spend and audience share data indicate that BEC’s share of audience (including digital TV) fell from 37.6% in April 2014 to 30.1% in Sept. Moreover, its market share of ad spend (including digital TV) slumped from 31.4% in April to 23.6% in Sept. The audience share of its combined digital channels rose slightly from 0.9% in June 2014 to 1.5% in Sept but its ad spend share for those digital channels tumbled from 11.8% in June to 4.9% in Sept (due to weak programming). Its analog audience share slumped from 37.6% in April to 28.6% in Sept while its analog ad spend share tumbled from 31.4% in April to 18.7% in Sept. 

In contrast, the ad spend shares of new digital TV operators (excluding existing analog free-to-air TV channels that are now simulcast on digital platforms) jumped from 4.5% in April 2014 to 28.3% in Sept 2014. BEC has clearly lost both audience and ad spend to other digital TV channels.