VGI Global Media

VGI Global Media Plc (VGI)

 

Investment thesis

In our view, VGI’s recent share price underperformance has already priced in the expectation of weak FY15/16 earnings. The share price should regain momentum going forward, as we are now in the peak season for transit media advertising spending and VGI’s earnings are expected to rebound accordingly. Also, its current valuation remains lagging behind its peers. In addition, there is upside potential to the firm’s dividend payment from idle CAPEX. We think that the firm’s long-term growth potential persists, both from BTS-related media (extension lines) and office building & other media businesses. We have therefore upgraded our rating for the stock to TRADING BUY from HOLD. 

Riding the peak season of transit media ad spending  

Within the Out-of-Home (OOH) media subsector (outdoor, transit, and in-store media), the fourth quarter is normally the peak season for transit media ad spending, unlike outdoor media, of which the peak season is in the third quarter and in-store media, whose peak season is in the second quarter. Historical data suggests that the ad spending of transit media expanded 6% QoQ in the fourth quarter (Figure 1). In addition, the transit media ad spending has risen 21% YoY to Bt3.7bn during 10M15—the second strongest YoY growth following the ad spending of digital TV (Figure 2). Given that, VGI should be the prime beneficiary of any transit media ad spending growth in 4Q15, as its revenue contribution from BTS-related media accounted for 90% of total revenue.  

Step away from modern trade media business … good strategy

The in-store media ad spending has continued to drop to date in 2015, with a contraction of 63% YoY to Bt571m during 10M15 and a fall of 86% YoY in Oct—the largest drop among all medias. Furthermore, the modern trade business normally generates the lowest gross profit margin (GPM) among VGI’s portfolio—only a single-digit percentage compared to more than 60% GPM from BTS-related media and office building & other media. These statistics justified that VGI’s strategic decision to step away from that business since early this year is an effective strategy and its forward profitability will be better, we believe.

Catch-up play for OOH space

We think that VGI’s current valuation—trades at end-March 2017 PER of 28.4x (a deep discount to Thai media peer average of 35.3x) and PBV/ROE of 0.23x (a deep discount to Thai media peer mean of 0.33x)—has already priced in the uninspiring FY15/16 earnings. Moreover, the valuation discount gap between VGI and PLANB’s forward PER has widened over the past few months to a 36% discount against the average of 29% discount. As such, we think that VGI’s valuation should somewhat catch up with PLANB going forward.