Plan B Media

Plan B Media Plc (PLAN B) 

 

PLANB is a debt-free, high-margin company that is rapidly growing profit, largely via aggressive acquisitions which it finances via cash. We forecast 36% earnings CAGR in 2016-18 driven by organic and inorganic growth. ROE is a high ~25% and dividend yield can grow rapidly if the firm decides to go for debt financing. Trading at 36x 2016 PE, PLANB isn’t cheap. But with stellar earnings growth, PE will drop to 22x in 2018. We initiate coverage on PLANB with a Buy at a TP of Bt8.5.   

 

Fuelled by diversification and consolidation. PLANB operates in five segments: transit, digital and static outdoor, in malls and in airports. A key strength is its ability to secure land/space at prime locations and win concessions from entities such as the MRT and BMTA. This fosters the addition of more assets which undergird the stellar growth it has shown for the past six years. PLANB provides clients with a one-stop service, which has been key to its success, as shown in its stable utilization rate at 70% on average for all media over the past five years despite doubling capacity. Revenue CAGR for 2010-15 was 41%, outperforming the sector by far. We expect strong revenue growth of 23% to continue over the next two years. The main thrust in 2016 is “Hello Bangkok”, for which it signed an exclusive agreement last year.        

 

Operational leverage will fatten margin. PLANB is a play on operating leverage as most operating costs are fixed: depreciation and rents account for 60% of its service costs. Despite adding new assets over the past couple of years and the slowed economy, it has been able to keep utilization rate at 70%, which we believe is the cyclic bottom. At this utilization, gross margin is 38%, also bottom, we believe. Utilization is expected to swing up to 78% in 2017 and 80% in 2018 (last seen in 2013) driven by mass transit (especially buses), now at a low ~65% due to the economy. With an upswing in utilization rate, our gross margin assumption expands from 38% in 2015 to 40% in 2018 (still below 2013’s 43%). Our sensitivity analysis suggests that a 1% rise in utilization rate will add 2% to PLANB’s earnings.  

 

In a multi-year earnings growth cycle. Though it has enjoyed very high earnings growth over the past four years, we do not believe growth has topped out. We estimate 2018 earnings at Bt1bn, double the Bt405mn in 2015. Behind the growth in 2016 is capacity increase as it adds more assets; an important one is “Hello Bangkok”. Growth in 2017-18 will represent organic growth with rising utilization rate, particularly on buses and new assets including digital TV in the upcountry, and a fatter gross margin.  

 

Buy at target price of Bt8.5. We initiate coverage with a Buy rating and DCF-based TP of Bt8.5 (cost of equity 9.6% and WACC 9.4%). Though the share has corrected sharply on fears the economic slowdown will cut profit, we believe its lengthy track record for excellent selling ability and a full-year impact of rising capacity from huge products added last year will underwrite earnings growth this year. PLANB is not a cheap stock, trading at 35x 2016 PE, but we believe it has room to re-rate further given the high earnings growth expected for the next three years.