BEC World

BEC World Plc (BEC)

 

Investment thesis

We think that BEC’s operational risk has mounted as the ratings of its super-prime Thai soap operas have weakened since August, and the firm will see heavier OPEX at its three channels in the next few years.  It has lost Thai soap opera audience share to Channel 7 and other digital TV channels (such as GRAMMY and RS). Due to diminished 3Q15 earnings expectations and the further decline in its ad spend share in FY16, we have trimmed our earnings forecasts 5% to Bt2.84bn (for FY15) and 8% to Bt2.97bn (for FY16). We have rolled over our target price to YE16 and derived the new target price of Bt29. SELL!   

Insights into 3Q15—earnings tumble 

We estimate a Bt600m net profit for 3Q15, down 45% YoY and 20% QoQ. The tumble is led by the ad revenue slump (weaker consumption and ratings losses for news and super-prime soap operas) and heavier OPEX for its three channels (programming, production and staff). We assume ad income for 3Q15 of Bt3.5bn, down 12% YoY and 6% QoQ (close to Nielsen’s 13% YoY and 7% QoQ drops) and GM of 32.5% in 3Q15 (against 43.8% in 3Q14 and 35.5% in 2Q15). Its 3Q15 ad income will be the lowest since 4Q12 and its 12% YoY drop for 3Q15 will be the steepest since 4Q05. Revenue from concerts and shows will jump 219% YoY and 58% QoQ, led by eight concerts and shows—Big Bang, Sound Box, Born to be Ben, Imagine Dragons Smoke + Mirrors, Bon Jovi, Stamp Lightning Strike, Maroon 5 and Muse. 

Weaker super-prime Thai soap operas during August-October

BEC’s rating (4 years+ nationwide) for its HD Channel (simulcast with its analog channel) dropped from 2.153 in July to 1.798 in September 2015 due to the loss of its super-prime Thai soap opera rating to Channel 7, whose ratings rose from 2.6 in July to 2.849 in September. We believe this trend is likely to continue in October. Although one of BEC’s Thai soap operas, Hong Hoon, could gain ratings of between 8 and 11 for its two finale episodes (against its average of 5.7-6.8), its other weekday shows remained weak in October—Sabai Jao (4.4-4.8) and Song Hua Jai Nee Pher Ther (5.3-5.8). In comparison, Channel 7’s gained tremendous success—Plurng Tawan (6.8-7.5), Roi Rak Rang Kan (8.5-10.2) and Paya Asoke (7.5-9.8). We believe that BEC needs to revamp its soap operas urgently after three months of rating losses. 

Ratings for its SD Channel dropped for the first time in September 

Its rating for SD Channel declined from 0.213 in August to 0.183 in September, the first time since its launch, which is presumably due to the weaker Thai soap opera reruns (despite greater sports content). The added sports on top of cartoons made its Family Channel rating rise from 0.1 in Aug to 0.119 in Sept. Revenues of both channels are still marginal. We believe that it will be a big challenge for BEC to drive ratings of both channels up in the long term with only the content being Thai soap opera reruns, Chinese and Korean series and added sports.