VGI Global Media

VGI Global Media Plc (VGI)  

 

Core profit below estimates 

VGI posted a 1Q15 (Apr-Jun 2015) net profit of Bt240m, a decline of 7% YoY but a gain of 1,493% QoQ. Stripping out the Bt56m reversal of a loss on provision for terminating an agreement and the Bt1m loss on the sale of an investment in a subsidiary, 1Q15 core profit would be Bt185m, down 31% YoY and 31% QoQ. While the bottom line was consistent with our forecast and that of the consensus, the core profit was 23% below our forecast and the consensus’, due to lower-than-expected sales and gross margin. 

Results highlights

Sales decreased 28% YoY and 11% QoQ to Bt549m, due to the termination of modern-trade media business and the slow recovery in ad spending. The Advertisement Display Concession Agreements (ADCA) with Tesco Lotus expired in February and the termination of ADCA with BIGC took effect on April 30. Given that, the modern-trade media billings dropped 83% YoY and 62% QoQ to Bt50m. However, the advertising receipts at the mass transit system expanded 3% YoY and 4% QoQ to Bt445m, while the advertising receipts at office buildings and other media sites climbed 30% YoY (but fell 4% QoQ) to Bt54m. VGI’s revenue was weaker than industry-wide ad spending—transit media ad spending grew 19% YoY in the April-June quarter. 

GM increased to 59.8% from 55.2% in 1Q14 and 58.7% in 4Q14, due smaller contributions from modern-trade media, which contributed a slim margin. However, BTS-related GM declined to 72% from 79% in 1Q14 and 74% in 4Q14, due to higher depreciation costs for digital media and a rise in concession fees from seven new BTS stations. Office building GM declined to 62% from 74% in 1Q14, due to higher depreciation and concession costs. 

Outlook

VGI’s 2Q15 (Jul-Sep) core earnings are expected to decline YoY, due to the absence of modern-trade media business and the slow recovery in ad spending. But, the firm’s 2Q15 core profit is expected to rise QoQ, driven by higher gross profit margin with the absence of modern-trade media business. 

What’s changed?

We have revised down our FY15 revenue forecast by 15% to Bt2,237m and net profit forecast by 23% to Bt938m to reflect the firm’s revised sales growth target to 10% YoY (excluding revenue from modern-trade media business) in 2015 from 16% YoY growth previously. Our end-Mar 2016 DCF-derived target price is now cut to Bt4.80 (from Bt5.20). 

Recommendation

As the firm’s short-term growth outlook remains subdued, we therefore think that there are no obvious catalysts for the share price in the near term. Despite that, the firm’s long-term growth potential prevails, both from BTS-related media (extension lines), and office building and other media businesses.