BEC World

BEC World Plc (BEC)  

 

BEC’s 2Q15 profit stayed flat from 1Q15, so we revise down its forecast this year. However, BEC has started boosting rating of the three digital TV channels with advantage from more content ownership than others. Its earnings are expected to start rebounding from 2H15 on. We reiterate BUY for attractive dividend yield. 

- Revenue from media business grows, but 2Q15 profit stays flat qoq 

2Q15 net profit was B754m, rising 0.8%qoq and falling 36%yoy. Although sales and service revenue grew 0.9%qoq and revenue from the media business climbed 6%qoq due to seasonal effect, cost increased because the underestimated cost of content (drama) in 1Q15 was recognized in 2Q15. Revenue from concerts and shows fell 55%qoq, resulting in loss, so gross margin stayed close to 1Q15 at 35.5% (the media business granted higher profit margin than the concerts and shows business). Moreover, SG&A increased by 7%qoq, but negated by shared profit of B17m (versus shared loss of B0.4m in 1Q15). 

- Revise down forecast. Profit to rebound from now on 2H15 advertise spending would be weakened by the economic slowdown, so it is not likely to grow significantly from 1H15. However, BEC has changed its strategies to maintain audience base of analog Channel 3 and boost popularity of Channel 3SD and Channel 3 Family to be among the seven channels winning largest audience base by replacing low-rating programs with new programs from external content producers with potential higher rating on analog Channel 3, airing sport live broadcast on Channel 3SD, and immediately re-running recently-ended popular drama series from on Channel 3SD at 19.00 to boost popularity; advertisement airtime is fully occupied, so advertisement rate may be raised in 2H15. In addition, BEC will broadcast series in its stock on Channel 3 Family to compete with other channels at lower cost. However, since 1H15 profit made up only 42% of the full-year forecast, we revise down our earnings forecast by 15.6% on average in 2015-2016, expecting BEC's net profit to fall 31%yoy to B3,040m in 2015 and rise 8.6%yoy in 2016. 

- Attractive upside, dividend yield    

Although BEC takes time for adaption, its popularity has been improving, and its profit is likely to rebound from 2H15 on. The fair value (DCF) of B44 shows 21% upside. BEC will pay 1H15 dividend at B0.70/share (1.9% dividend yield); the XD date is August 17. We reiterate BUY.