VGI Global Media

VGI Global Media Plc (VGI) 

 

In line with estimates 

VGI posted a 3Q15 (Oct-Dec 2015) net profit of Bt232m, down 23% YoY and 10% QoQ. Stripping out Bt5m gain on sales of investment, Bt4m gain on sales of equipment and Bt2m reversal of loss on provision for revenues being lower than the minimum guaranteed amounts, 3Q15 core profit would be Bt222m, down 11% YoY but up 2% QoQ. The result was in line with our forecast and the consensus. 

Results highlights

Sales decreased by 34% YoY and 3% QoQ to Bt520m, due to the termination of modern-trade media business and slow recovery of ad spending. The Advertisement Display Concession Agreements (ADCA) with Tesco Lotus expired in February 2015 and the termination of ADCA with BIGC took effect on April 2015. Given that, the revenue from modern-trade media was no longer booked since May 2015. Meanwhile, the advertising receipts at the mass transit system decreased by 8% YoY and 6% QoQ to Bt453m, due to lower occupancy on the back of economic slowdown. However, the advertising receipts at the office buildings and other media rose by 38% YoY and 17% QoQ to Bt66m, driven by greater number of office buildings, increased ad rates, and commission fee from being sole agent for MIDAS. 

GM increased to 65.5% from 53.5% in 3Q14 and 64.3% in 2Q15, due absence of contribution from the modern-trade media of which contributed slim margin. However, BTS-related GM declined to 70.9% from 75.3% in 3Q14, due to higher depreciation costs for digital media and increase in concession fee from 7 new BTS stations. But it rose from 69.1% in 2Q15, due to cost control. Office building GM declined to 63.9% from 68.3% in 3Q14, due to higher depreciation expenses. 

Outlook

VGI’s earnings are expected to increase YoY in 4Q15 (Jan-Mar 2016), driven by broad recovery of ad spending both advertising receipts at the mass transit system and office building media. However, The firm’s 4Q15 profit is expected to soften QoQ, due to low seasonality of ad spending. 

What’s changed?

9M15 net profit represents 76% of our FY15 net profit forecast of Bt968m of which we maintain unchanged. 

Recommendation

In our view, VGI’s recent share price underperformance has already priced in the weak FY15/16 earnings outlook. The expectations of expansive earnings profile of 16% CAGR during 2015-17 to be brought about by improved occupancy and ad rates on the back of economic recovery—against 9% for the broad SET—should be the share price catalyst going forward. Also, the 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 still persists both from BTS-related media (BTS extension lines) and office building & other media businesses.