Media

4Q14 recap. Earnings in media companies continued to surprise us and market on the downside. The sector was hit by a double whammy: sluggish ad spending due to a less viable economy and fiercer competition from digital terrestrial TV (DTTV). The biggest surprise came from analog incumbent MCOT, with a QoQ fall in earnings of over 50% in spite of the fact that 4Q is generally seasonally better than 3Q. YoY, MCOT’s earnings fell a steep 76%. Behind this was loss of market share and sluggish economy. BEC did not escape these factors and its profit also fell both QoQ (-7%) and YoY (-27%). This led to a continuation in the series of earnings downgrades by SCBS and the street.  

Channel 5 and Modernine on the decline. With DTTV gaining popularity, ad spending is moving onto this platform. According to Nielsen, ad spending on DTTV in February 2015 was up 13% MoM. The former glories of analog terrestrial TV continued to be on the wane and ad spending here slid by another 6% YoY in February – the fifteenth consecutive month of a decline. Having said that, there was a positive sign that ad spending on traditional platforms was regaining some of its traction, increasing 7% MoM in February. The increasing popularity of DTTV is leading to a shift in market share from incumbents, such as Channel 5 and Modernine (MCOT), to small operators like WorkPoint (WORK), RS and Grammy (GRAMMY), among others. According to recent data from Nielson, WORK’s ratings in January managed to beat both Channel 5 and Modernine, while RS is challenging Modernine. BEC and Channel 7 have begun to feel the pinch from fiercer competition from DTTV. BEC plans to launch fully into DTTV, fighting back by introducing more new content in April. 

Earnings to continue to decline in 2015. The sharp fall in 2014 earnings is not the end - we expect sector earnings to fall another 10-15% in 2015 before recovering in 2016. Behind this is lower ad revenue, eroded by the slower economy, and losses from DTTV due to a mismatch between revenue and costs. We expect DTTV losses to bottom in 2015, after which they will come down sufficiently to allow some recovery in 2016. Hence, in our projection, we call for bottom in 2015 with a pickup in 2016.       

MAJOR remains our top pick for the sector. MAJOR is still our top buy for sector. MAJOR stands to benefit from a golden year for the movie business in 2015 plus local economic recovery. We expect strong earnings growth of 34% in 2015 to a record of Bt1.3bn.