VGI Global Media

VGI Global Media Plc (VGI) 

 

Investment thesis

In our view, VGI’s recent share price underperformance has already priced in the weak FY15/16 earnings outlook. Expectations of the 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. In addition, there is upside potential for the firm’s long-term growth potential from BTS-related media (BTS extension lines), office buildings and other media businesses, and future M&As. 

Acquisition of greater stake in MACO  

VGI’s board meeting on 16 Mar 2016 approved the acquisition of an additional 375m Master Ad PCL (MACO) shares (at par value of Bt0.10 per share), representing 12.46% of all paid-up shares in MACO, at the purchase price of Bt1.10 per share and for a total sum of Bt412.5m. After this acquisition, VGI will hold a 37.42% shareholding in MACO, which triggers the 25% threshold at which VGI is required to do a tender offer for the rest of the shares. The firm will make such an offer for MACO shares up to 1,484m shares, representing 48.79% (excluding the remaining 13.79% of the founder group], at the offer price of Bt1.10 per share). Funds will be sourced from operating cash flow and/or loans from financial institutions.

The purchase price of Bt1.10 per share, implies a YE16 PER of only 18.7x, which was a 34% discount to the regional average of 28.4x. VGI should be able to finance this deal without any difficulties, as the company was net cash as of end-December 2015.

Strategic step to being nationwide integrated media player

This acquisition is a strategic step for VGI to expand its out-of-home media network in order to extend the variety of its products. Also, this move will transform VGI from being a Bangkok-centric media provider into a nationwide integrated supplier as it will use MACO as a vehicle for billboard expansion nationwide. As of YE15, MACO has 658 billboards, 678 units of street furniture and seven units of other media, representing growth of 17% YoY compared to 2014.  

Earnings accretion expected with scope for the upside

We are positive about this deal, as it is an operating asset that is expected to start contributing earnings from 2H16 onwards. MACO posted FY15 revenue of Bt694m (up 12% YoY) and net profit of Bt171m (up 29% YoY). Management targets its revenue growth to be 28% YoY to Bt900m in 2016 and its net profit to double in five years. Our preliminary estimate is that this acquisition will contribute around a 1% rise in VGI’s long-term earnings and will add Bt0.07 per share to VGI’s YE16 target price, assuming the additional stake of 12.46%. If VGI acquires all of the remaining shares in MACO (12.46% plus 48.79%), our preliminary estimate is that VGI’s long-term earnings will increase 6% and will add Bt0.36 per share to VGI’s YE16 target price. Moreover, there is scope for upside to MACO’s long-term earnings from both organic business and M&As.