Media

Media 

1Q15 recap. 1Q15 earnings in media companies showed no sign of touching bottom despite the series of falls in earnings since 1Q14. BEC reported its lowest quarterly earnings since 1Q12 at Bt746mn, down 35% YoY and 26% QoQ. MCOT was even worse with a sharp plunge of 86% YoY and 40% QoQ to a record low of Bt27mn. The major players in digital terrestrial TV (DTTV), i.e. WORK, GRAMMY and RS, also suffered an operational meltdown. WORK posted a net loss of Bt11.4mn in 1Q15, worse than the net loss of Bt2.3mn in 1Q14. Likewise, losses at RS grew to Bt41mn from Bt4mn in 1Q14. GRAMMY also posted a core loss but little changed YoY at -Bt277mn in 1Q15. The primary cause behind the poor showing was the slow ad spending brought by the staggering economy and fiercer competition from DTTV.  

Heated rivalry in TV business. Competition is heating up in the TV business, with analog and digital players all fighting to gain share. We are beginning to see some digital TV operators, those with weaker content and relatively fragile balance sheets, take the exit. Thai TV, or “TV Pool” is the first such: it has come out to say it will not make the second payment on its digital license to the NBTC and will instead leave the DTTV business. The reason given is that the firm incurred huge losses due to the slow distribution of coupons by the NBTC.  

We believe this is just the beginning, and expect others to follow suit. In our view, there are too many DTTV channels battling for limited advertising budgets, making it impossible for operators with less attractive content to fight incumbents such as BEC and Channel 7. The sluggish economy exacerbates the situation for smaller players. 

Earnings to continue to decline in 2015. We expect a further earnings slide in 2015 from 2014 with a drop in 3Q15 both YoY and QoQ. The QoQ decline will be seasonal but the YoY from further DTTV losses. We expect an accelerating fall in 2015 earnings of 20-25% (from a fall of 10-25% in 2014) before recovering in 2016. We expect DTTV losses to bottom in 2015, after which they will lessen to the point where some recovery may be seen in 2016. We call for bottom in 2015 with a pickup in 2016.    

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