Mono Technology

Mono Technology Plc (MONO)

Investment thesis
We expect MONO’s net loss to continue in FY16, due to the anticipation of sustained high content costs. We believe that its revenue growth cannot keep pace with rising costs. The factors to pressure its long-term performance are: 1) the downtrend in its mobile value-added services (MVAS), which used to be its main business with a high margin, 2) content costs in its digital TV business have continued to rise, and 3) digital TV business competition remains fierce, thus we revised our FY16 net loss to be deeper and slashed our YE16 target price by 22%, reflecting our recent earnings cut. Our HOLD rating on the stock stands.
Insight into 4Q15—high content costs dent 4Q15
We model a Bt87m 4Q15 net loss, 230% deeper in the red, YoY (led by a jump in digital content costs and marketing expenses, which outweighed the revenue rise), but a 9% QoQ shallower (digital TV revenue rise and high season). We expect its stand-alone digital TV channel business to post a shallower net loss in 4Q15 and reach break-even in 1H16. We estimate its digital utilization rate of 75% in 4Q15, up from 60% in 3Q15 and 2Q15 and 50% in 1Q15.
Also expected is achievement of a mean digital ad rate of Bt15k/min in 4Q15, up from Bt13k/min in 2Q15 and Bt10k/min in 1Q15. Sales in 4Q15 will be Bt478m, up 6% YoY and 6% QoQ. Disaggregated by unit, revenue from its MVAS dropped 26% YoY but was flattish QoQ. Revenue from media business leaped 76% YoY and 16% QoQ, while revenue from entertainment jumped 46% YoY but was flattish QoQ.
Loss to extend into 2016
Bualuang Research maintains its 2015 net loss projection of Bt446, a reversal from a Bt39 net profit in the prior year. Revised is our FY16 net loss to be 67% deeper, due to high content costs. We estimate its 2016 digital utilization rate and mean digital ad rate to reach 72% and Bt18k/min, respectively, up from 62% and Bt12k/min in 2015. Its TV digital revenue should extend to Bt1bn in 2016, from Bt700m last year. MVAS revenue will drop to Bt800m this year, against 2015’s Bt900m.
Program variety to be expanded
Content costs are expected to be Bt900m in the current year, up from Bt600m in 2015. Its budget for content is allocated thus: 1)  Bt400-500m for movie and series content, 2) Bt150-200m for Thai soap operas; MONO plans to expand its customer base upcountry, by broadcasting more Thai soap operas in FY16 such as Naresuan, Tee Yai, Phan Thai Norasing, Angels 2, 3) Bt40-50m for sports content such as MONO29 Topking World Series 2015, and, 4) Bt150-200m for news and variety shows; it plans to add 1-2 variety and game shows in 2016. However, movies still account for 70% of total content for this year.