THAILAND Sector Note 12 JUNE 2013 Sector Outlook ef Sector Weighting Underweight
Thailand Media Sector Playing the liberalization game
Sector Valuation Current Target Norm EPS grw ⎯ Norm PE ⎯ ⎯ EV/EBITDA ⎯ ⎯ Div yield ⎯ BBG price price 2013F 2014F 2013F 2014F 2013F 2014F 2013F 2014F Company Code Rec. (Bt) (Bt) (%) (%) (x) (x) (x) (x) (%) (%) BEC World BEC TB HOLD 63.75 68.00 24.2 14.4 21.5 18.8 13.0 11.5 4.5 5.2 GMM Grammy GRAMMY TB SELL 19.10 16.00 na na na na 44.1 11.8 0.0 0.0 Major Cineplex MAJOR TB BUY 21.20 28.00 56.9 18.3 18.7 15.8 9.9 9.5 4.8 5.7 MCOT Pcl MCOT TB SELL 45.50 38.50 2.1 9.0 17.4 16.0 11.9 11.0 5.2 5.6 RS Pcl RS TB BUY 9.85 14.50 66.2 39.9 21.6 15.4 12.6 11.2 3.2 3.9 VGI Global VGI TB BUY 130.00 165.00 49.4 33.3 30.5 22.9 22.3 16.5 2.8 3.7 Source: Thanachart estimates (Based on 11 June 2013 closing prices) Note: VGI’s fiscal year-end is in March. We look at VGI’s FY14F (April 2013 – March 2014) numbers to compare with other companies’ 2013F figures.
We downgrade our Thai media sector rating from Overweight to UNDERWEIGHT as we see: 1) a less favorable valuation versus earnings growth matrix, and 2) rising expenses and uncertainty from the kick-starting of industry liberalization. Our top BUYs are VGI and RS while we downgrade our call on BEC to HOLD.
Less favorable valuation versus growth matrix As the media sector index has risen by 156% over the past three years, KALVALEE THONGSOMAUNG we see it as less attractive now, trading at PEs of 24x in 2013F and 20x 662 – 617 4900 in 2014F versus our 2013-15 EPS CAGR forecast of 23%. From the [email protected] valuations above, the strongest growth stocks are VGI (fiscal year ending
March), followed by RS while the cheapest PE are MCOT and MAJOR. Media Index Relative To SET We however like VGI and RS more as we prefer to pay for growth prospects. We also see VGI as having the best business model. (Index) SETENTER Index (%) 120 Rel to SET Index 100 100 80 60 Thanachart Securities Digital TV bidding kick-starting liberalization 80 40 60 20 The National Broadcasting and Telecommunications Commission 0 40 (20) (NBTC) plans to auction digital TV licenses in September 2013, although 20 (40) the timeframe could be changed. If it goes ahead, we see this kick- Jan-10Nov-10Sep-11Jul-12May-13 starting the liberalization of the industry, causing a new capex and Sources: Company data, Thanachart estimates operating expense cycle for most players in the medium term and in the
long term allowing the more serious industry players to emerge. We Sector And Stock Changes YTD expect completion of the transformation from the existing analog to the digital system to take place over the next five to seven years when the BEC MCOT analog concessions of key players, including BEC’s, are due to end. Sector SET GRAMMY What’s in the mid-term transformation process? VGI (%) We expect digital TV licenses to lead to more expenses than revenues RS for the industry in the first few years. To ease the impact and prepare for (20)0 20406080
more competition, we see the existing top players trying to hike ad rates Sources: Company data, Thanachart estimates
Thanachart Securities as much as possible before digital TV is fully functional. Some smaller players which are still struggling to make profits with satellite TV such as Yearly Ad Spending Growth GMM Grammy (GRAMMY TB) could be in a difficult position during the (Bt bn) Total ADEX (LHS) (y-y %) transformation, in our view. Other small players include Workpoint 140 growth (RHS) 15 Entertainment (WORK TB) and Nation Multimedia Group (NMG TB). 130 120 10 110 This is how we play the sector 100 5 90 We see VGI and BEC as having the strongest fundamentals. But we no 80 0 longer view BEC as cheap and expect it to face more competition once 2009 2010 2011 2012 2013F digital TV is fully functional. We downgrade BEC from Buy to HOLD. Sources: Nielsen, Thanachart estimates Apart from VGI, RS is a top sector pick as in the medium term we see it enjoying rising ad rates for its top satellite TV ratings with the World Cup boosting 2014F profits. In the long term we expect RS to emerge as a more serious mainstream TV player under the digital TV platform.
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CONTENTS KALVALEE THONGSOMAUNG
Contents Page
Less favorable valuations versus growth matrix……………………………………………………………..……...…….……….. 2
Digital TV bidding to kick-start real liberalization………………………………….……………………………..…………...…..… 4
Who’s taking part in the digital TV transformation?…………………………………………………………....……..…………. 5
What is the end game? ………………………………………………………………………………………..………....….……. 7
What’s involved in the mid-term transformation process?…………………….……………………………..……….………..… 9
Transition process in the making.…………………………………………………………………………………..……………. 10
Healthy total ad spending …………………………………………………………….……………………………..……….………... 14
VGI and RS are our top sector picks……………………………………………….……………………………..….………………. 15
VGI Global Media Pcl (VGI TB).…………………………………………………………………..………………..……………. 16
RS Pcl (RS TB)….………………………………………………………….…….………..……………….………...……..……. 17
Major Cineplex Group Pcl (MAJOR TB)………………..…………………………………………….……………………...…. 18
BEC World Pcl (BEC TB)……...…...... 18
MCOT Pcl (MCOT TB)..……………………………………………………………………………………………………...…... 19
GMM Grammy Pcl (GRAMMY TB).………………………………………………………………………………………..……. 19
Sector Valuation Comparison….…..……………………………………………………………………………………..…………… 20
Regional Valuation Comparison....………………………………………………………………………………………..….………. 21
Company Notes…..……………………………………………………………………………………..……………………………...…….
BEC World Pcl (BEC TB) — Fairly valued ………...………………………………..…………….…………………….……. 22
GMM Grammy Pcl (GRAMMY TB) — No turnaround in sight ………...…….………………….…………………….……. 28
Major Cineplex Group Pcl (MAJOR TB) — Growth path firms up .....………………………….…………………….……. 32
MCOT Pcl (MCOT TB) — Victim of liberalization ………...……………………………..……….…………………….……. 36
RS Pcl (RS TB) — Best liberalization play ………...………………………..…………………….…………………….……. 42
VGI Global Media Pcl (VGI TB) — Creativity driving growth ………...………………………….…………………….……. 46
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Less favorable valuation versus growth matrix
We cut our sector rating As the Thai media sector index has nearly doubled over the past three years, we decide to from Overweight to downgrade our rating from Overweight to UNDERWEIGHT for the following reasons: UNDERWEIGHT 1) We now see the sector’s valuation versus earnings growth matrix as being less favorable.
2) We expect the kick-starting of industry liberalization to cause expenses to rise and to lead to more competition. The media sector index has risen by 156% over the past three years, outperforming the Stock Exchange of Thailand (SET) Index which is up by 89%, and we see the sector as less enticing now, trading at PEs of 24x in 2013F and 20x in 2014F versus our forecast of a 2013-15F EPS CAGR of 23%. This may not look too excessive but we view it as an unattractive level for the sector as it is about to enter the process of liberalization.
Our top picks are VGI and Our top sector picks are VGI and RS as we forecast them to enjoy the strongest earnings RS while we downgrade growth in the sector in 2013-14 (Exhibit 5). Note that VGI’s fiscal year-end is March and we BEC to HOLD use VGI’s FY14F (April 2013-March 2014) figures to compare with the 2013 numbers of other media companies. MCOT and MAJOR have lower valuations than sector peers on our estimates but we still like VGI and RS more as we prefer to pay for their growth prospects and what we view as their more attractive long-term business outlook.
We downgrade BEC from Buy to HOLD as we believe it is fairly priced at its current valuation compared with its earnings growth matrix (Exhibit 1). We still see BEC as enjoying the strongest fundamentals in the sector given its leading market position and solid balance sheet. However, industry liberalization should in our view eventually result in a more competitive landscape with more players entering to share the TV advertising expenditure (adex) pool.
Ex 1: Sector Valuation Comparison
EPS growth —— PE —— — P/BV — EV/EBITDA Div yield Name BBG code 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F (%) (%) (x) (x) (x) (x) (x) (x) (%) (%) BEC World BEC TB 24.2 14.4 21.5 18.8 14.3 13.4 13.0 11.5 4.5 5.2 GMM Grammy GRAMMY TB na na na na 4.0 4.6 44.1 11.8 0.0 0.0 Major Cineplex MAJOR TB 56.9 18.3 18.7 15.8 2.9 2.8 9.9 9.5 4.8 5.7 MCOT Pcl MCOT TB 2.1 9.0 17.4 16.0 3.8 3.7 11.9 11.0 5.2 5.6 RS Pcl RS TB 66.2 39.9 21.6 15.4 6.4 5.4 12.6 11.2 3.2 3.9 VGI Global VGI TB 49.4 33.3 30.5 22.9 19.5 16.0 22.3 16.5 2.8 3.7 Average 26.6 19.9 23.8 19.8 8.5 7.7 19.0 11.9 3.4 4.0 Sources: Company data, Thanachart estimates Note: VGI’s fiscal year-end is in March. We look at VGI’s FY14F (April 2013 – March 2014) numbers to compare with other companies’ 2013F figures. Based on 11 June 2013 closing prices
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Ex 2: PE Band Back To The High Range
(Bt bn) 55x 45x 600
500 35x
400 25x 300 15x 200
100 5x 0
(100) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F Sources: Bloomberg, Thanachart estimates
Ex 3: Sector Earnings Growth vs PE Multiples Ex 4: Sector PEG (2013-15F EPS CAGR)
(x) PE ( LHS) (%) (x) 25 Earnings grow th (RHS) 70 3.5 4.2 10.5 23 60 3.0 50 21 2.5 19 40 2.0 17 30 20 1.5 15 10 1.0 13 0 0.5 11 (10) 0.0 9 (20) 7 (30) (0.5) 5 (40) (1.0) 2005 2006 2007 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2013F Sources: Company data, Thanachart estimates Sources: Company data, Thanachart estimates
Ex 5: VGI And RS Enjoy Strong Earnings Growth … Ex 6: … And Undemanding 2013-15F PEG Valuations
(%) 2013F 2014F (x) 70 66 3.5 57 3.1 60 49 3.0 50 40 2.5 40 33 31 2.0 30 24 1.6 18 1.4 20 14 1.5 1.2 1.2 9 10 1.0 2 na 0 0.5 RS VGI BEC 0.0 MCOT MAJOR MA JOR V GI RS BEC MCOT GRAMMY Source: Thanachart estimates Source: Thanachart estimates Note: VGI’s fiscal year-end is in March. We look at VGI’s FY14F (April 2013 – Note: VGI’s fiscal year-end is in March. We look at VGI’s FY14F (April 2013 – March 2014) numbers to compare with other companies’ 2013F figures; we March 2014) numbers to compare with other companies’ 2013F figures; we forecast GRAMMY to be loss making in 2013-14 forecast GRAMMY to be loss making in 2013-14
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Digital TV bidding to kick-start real liberalization
Liberalization should We expect the Thai media industry to officially kick-start its liberalization process via the soon be officially under beginning of the transformation process from the analog to the digital terrestrial TV system. way with digital TV In fact, the preparations by players for liberalization started two to three years ago when the license bidding satellite TV market platform became more widely used. For the serious players we see that as the pathway to prepare for the real game under the upcoming digital platform.
Digital TV bidding in The National Broadcasting and Telecommunications Commission (NBTC) expects to hold around September 2013 the digital TV license auction in September 2013 although the date could still be changed. We see a delay as possible but still expect the bid to be held within this year. The move from analog to digital involves a change of technology but from the perspective of liberalization the NBTC would still be able to regulate the industry while we would expect the number of players in the free TV market to rise. Under the current analog system, the players are limited by concessions. There are six free-terrestrial analog TV channels which are BEC’s Channel 3, unlisted Channel 7, MCOT’s Channel 9, military-owned Channel 5, government-owned National Broadcasting Services of Thailand (NBT) and the publicly funded Thai Public Broadcasting Service (Thai PBS).
Total of 48 licenses, The NBTC plans to issue 48 digital TV channels – 12 public service channels, 24 channels including 24 commercial- for commercial purposes and 12 for community services. We expect non-profit purposes licenses organizations, government entities and local community entities to join the beauty contest for the public and community channels by submitting applications for broadcasting approval to the NBTC. Note that the non-commercial channels (public and community channels) would not earn advertising income but would be sponsored by the government or the non- profit organizations.
Our focus in this report is on the 24 commercial-purposes channels that would enjoy TV advertising expenditure (adex) which is now reaching the Bt70bn level. We see the analog- digital transformation process changing the industry’s oligopolistic character under concession businesses (BEC, Channel 7 and MCOT account for 80% of the total adex pool) to a more competitive industry landscape.
Ex 7: Adex Share By Existing Analog TV Channel Ex 8: Competition To Intensify With More Players
NBT
Channel 5 3% 17% Channel 7 32%
24 digital TV Analog TV channels
MCOT 18%
BEC 30%
Source: The Nielsen Company as of April 2013 Source: Thanachart estimates
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Ex 9: 48 Digital Terrestrial TV Channels Are Planned By the NBTC
Purpose No. of channels Participants Approval Sources of income 1. Public service 12 - Non-profit organizations Submit applications to the Sponsored by government entities - Government entities NBTC for approval and non-profit organizations - National security 2. Commercial 24 Commercial content providers Bidding Ad spending 3. Community 12 Local community entities Submit applications to the Sponsored by government entities NBTC for approval and non-profit organizations Sources: NBTC, Thanachart estimates
Who’s taking part in the digital TV transformation?
Five licenses for 1) Infrastructure and network providers. Aside from the 48 content-based digital TV infrastructure and licenses, the NBTC also plans to issue five infrastructure and network licenses. Digital network providers, which broadcasting would require investment in infrastructure and digital network equipment. would earn rental fees Infrastructure and network providers would not need to bid for these licenses as they would be granted based on the NBTC’s criteria. We expect the existing infrastructure and network providers under the analog terrestrial TV system, including MCOT, Thai PBS and the Royal Thai Army, to be granted digital terrestrial TV infrastructure and network licenses. Given that these potential players already have infrastructure facilities including main broadcasting towers, this could help speed up the digital TV network roll- out with lower investment costs. One of the criteria is that providers would have to have network coverage of 50% in 2014, 80% in 2015, 90% in 2016 and 100% by 2017. The providers would earn income from content providers via rental fees.
Ex 10: Timeline For Digital TV Network Coverage
100% 90% 80%
50%
2014 2015 2016 2017
Source: NBTC
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48 channel licenses, 2) Content providers. As shown in Exhibit 9, there would be a total of 48 content-based including 24 commercial or TV channel licenses, 24 of which would be commercial-purpose licenses. Those 24 ones licenses are classified into four categories: 7 channels for variety in the high-definition (HD) format, 7 channels for variety in standard definition (SD), 7 channels for news in SD, and 3 channels for children’s programs in SD. Based on the NBTC’s preliminary study, the competition would be the most intense for the variety SD format, followed by children’s, news and then variety HD. The NBTC is also enforcing a regulation to prevent manipulation of the media by not allowing any bidders to acquire more than one license per category and not allowing the acquisition of a variety HD format and news channels by one entity. We summarize in exhibits 11-12 the potential players in the 24 commercial digital TV channels. They are BEC, MCOT, RS, GRAMMY, WORK and NMG, etc., which are currently the content providers in free-terrestrial analog TV and satellite TV.
Ex 11: Existing Players In Free-Terrestrial Analog and Satellite TV
Potential players Existing platform Competitive edge Existing program content BEC World Pcl Free-terrestrial TV - #2 market share (28%) of free-TV adex News, entertainment variety, soap - 80% in-house produced programs operas, talent shows and content acquired from overseas
Channel 7 Free-terrestrial TV - #1 market share (32%) of free-TV adex News, entertainment variety, soap (private company) Satellite TV - 70% in-house produced programs operas, talent shows and content - Operates 1 satellite TV channel (re-runs) acquired from overseas
GRAMMY Pcl Free-terrestrial TV - Content provider to free-TV operators Entertainment variety, soap operas, Satellite TV - Operates 10 satellite TV channels music and movies - #2 market share (18%) of satellite TV adex
MCOT Pcl Free-terrestrial TV - #3 market share (19%) of free-TV adex News, entertainment variety, soap - 48% in-house produced programs operas and talent shows
Nation Multimedia Group Satellite TV - Operates 3 satellite TV channels News and children’s content Pcl - #3 market share (7%) of satellite TV adex acquired from overseas
RS Pcl Satellite TV - Operates 5 satellite TV channels Entertainment variety, soap operas - #1 market share (30%) of satellite TV adex and music
Workpoint Pcl Free-terrestrial TV - Content provider to free-TV operators Entertainment variety Satellite TV - Operates 1 satellite TV channel - #4 market share (5%) of satellite TV adex Sources: Company data, Thanachart estimates
Ex 12: Four Categories Of Digital Terrestrial TV Licenses And Interests Of Potential Players
No. of channels Category BEC TB GRAMMY TB MCOT TB RS TB NMG TB WORK TB 7 Variety in HD 9 9 9 7 Variety in SD 9 9 9 9 9 9 7 News in SD 9 9 3 Children’s in SD 9 9 9 Sources: Company data, Thanachart estimates
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Existing households with 3) Household receivers. Exhibits 13-14 show the existing analog and digital terrestrial TV antenna receivers need to receivers in Thailand. In order to receive digital terrestrial TV signals, existing buy a digital converter households with antenna receivers would need to change their receivers and there box or a new TV with would be two alternatives for this. 1) Buying a digital converter box for about Bt1,000 digital TV tuner built-in per box which would be partly subsidized by the NBTC. We expect the NBTC to use the proceeds from the bidding for commercial-purpose digital TV channels to issue discount coupons and distribute these to households to buy a set-top-box converter. 2) Buying a new TV with a digital tuner built-in soon to be commercialized in the market by global TV manufacturers such as LG, Panasonic, Samsung and Sony, etc.
Ex 13: Existing Analog Terrestrial TV Receivers
Analog signal
Broadcasting station Conventional TV transmitter
Source: Thanachart
Ex 14: Digital Terrestrial TV Receivers
Digital signal
Digital tuner built-in TV
Terrestrial digital converter box Conventional TV Broadcasting station transmitter Source: Thanachart
What’s the end game?
We see the end game of the liberalization process as follows:
We expect most top First, despite some concerns by players over how high the final bidding prices and network content providers to bid rental fees might be, we expect most key players in both the terrestrial free TV and satellite for digital licenses TV markets to participate in the bidding. This is based on our assumptions as follows:
We expect the analog system to have disappeared at the latest by around the year 2020-2022, when the analog concessions currently held by BEC and Channel 7, the two largest players, are scheduled to expire.
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We believe the NBTC is very determined not only to make the digital TV platform happen but also to proceed with liberalization, which implies more industry players. Therefore, the NBTC would have to make sure that the mainstream players, including BEC, Channel 7 and MCOT, and other quality content providers, such as RS, GRAMMY, WORK, NMG, etc., are on the digital TV platform. To make sure that happens, this implies to us that the NBTC would finalize the regulations in such a way as to make it feasible for these players to move to the digital platform rather than being on other platforms such as satellite TV. We also believe that because of the NBTC’s determination to make the digital TV platform a success, there is a risk that other platforms like satellite TV would in some way or somehow be kept as a kind of “bonsai” platform with only small and niche players participating. We see this implying that quality content providers such as RS, GRAMMY, WORK, NMG, etc., would have to think very hard before deciding not to move to the mainstream digital TV platform.
Medium term, players Secondly, although we expect the digital broadcasting in the medium term to cause a new with strong free TV and capex cycle and higher operating expenses for most players, we believe in the long term satellite TV positions the new platform would strengthen the industry with more serious players emerging should continue to enjoy focusing on quality content. In the process we see the weaker or overly small players being contributions from these forced out of the mainstream platform. We also expect the TV adex pool to grow at more existing platforms than an organic rate with program and slot supply in return for quality work, resulting in a risk to the market share or growth outlook of other platforms, including satellite TV. That said in the medium term, say in the first two to three years of digital broadcasting, we believe there is a risk of costs rising faster than revenues. Given that we expect the NBTC to still allow analog broadcasting to continue along with digital broadcasting during the period when coverage or digital penetration is not complete, we see players which currently have strong positions in free TV and satellite TV continuing to enjoy contributions from these existing platforms.
We don’t expect the Thirdly, we expect BEC and Channel 7 to remain as the market leaders with the best- leaders to change … … quality content. But they would still have to share the adex market with other players. There though they may lose is no change to our view of the winners and losers ranking in the new digital era. We copy some market share and paste Exhibit 4 from our report RS Pcl – “Best of both worlds,” dated 20 February 2013. Exhibit 15 shows our view that BEC and Channel 7 have more to lose than rivals as they have the largest market shares in the TV adex pool while RS has the most to gain as its revenue base is from the satellite TV platform which still earns ad rates at only Bt25,000 per minute on prime-time slots (versus BEC’s Bt480,000 and even higher for Channel 7’s).
Ex 15: Winner And Loser Rankings In The New Digital TV Era
Ad rate level
High Channel 7 (free TV) BEC (free TV)
MCOT (free TV) WORK (mix)
GRA MMY ( mix )
RS (satellite TV) Low Upside from ad rate unlocking High
Sources: Company data, Thanachart estimates
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What’s involved in the mid-term transformation process?
We discussed our view on the end game in the previous section of this report. In this section we talk about the analog-digital transformation process over the medium term. There should be a transition period before full conversion to the digital system, which we expect to take place around the end of the current analog concessions in 2020.
We expect more In the transition period we expect digital TV licenses to result in more expenses than expenses than revenues revenues for the industry in the first two to three years starting from 2014. We see key from the digital platform expenses being amortization of the license bidding prices, network rental fees and program in the early years production costs. During the transition period we expect continued analog broadcasting along with digital to be allowed, so we see existing players trying to hike ad rates as much as possible on their existing platforms before the digital TV platform is functioning fully.
But we see growth from We have seen that trend since last year when ad rates were hiked by an average of 10% on existing platforms free TV and 25% by RS, the top-rated satellite TV player. We forecast around a 12% ad outweighing that impact rate increase this year for free-TV operators and 42% by RS. As a result, for those top- quality players which have a certain degree of pricing power, we expect their earnings growth from the existing platforms to more than offset potential losses from digital platform broadcasting in the early years. Smaller players which are still struggling to make profits on the satellite TV platform, such as GRAMMY, could find themselves in a difficult situation during the transformation period, in our view. Other small players include WORK (not rated) and NMG (not rated).
What if the digital license bidding is delayed from this year? We believe that should be earnings positive for 2014 because of new expenses being delayed.
Ex 16: Growth From Existing Platforms Outweighs New Expenses From Digital (2014F)
(%) 40
30
20
10
0 (10)
(20)
(30)
(40) (97.7) RS BEC MCOT GRA MMY
Source: Thanachart estimates
We factor in digital TV We have incorporated the digital TV values based on the current information available, values based on currently although these are still subject to the uncertainties of the must-carry rule and the network available information rental fee. We assume fully functioning digital TV in three to five years and the completion of the digital transformation in 2020 when analog terrestrial TV concessions (BEC and Channel 7) are due to expire. We therefore don’t project ad spending on the digital TV format to be very active in the first few years as we assume less than full network coverage while the digital TV ratings system of The Nielsen Company is not yet complete.
Exhibit 17 shows our digital TV assumptions for each media company.
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Ex 17: Our Assumptions For The Kick-Starting Of The Digital TV
Content Bidding Starting bidding Bidding price Network rental 2014F – 2018F providers license price (Bt m) (Bt m) (Bt m/ license/year) Capex (Bt m) BEC Variety HD 1,500 1,650 100 2,000 (10% incremental form starting price) MCOT Variety HD 1,500 1,650 100 5,000 (10% incremental) Including network Variety SD 380 760 60 expansion (100% incremental) RS Variety SD 380 760 60 1,600 (100% incremental) GRAMMY Variety HD 1,500 1,650 100 1,800 (10% incremental) Sources: Company data, Thanachart estimates
Transition process in the works
Process timeline The NBTC has set the timeline for digital TV transformation as shown in Exhibit 18. The bidding for 24 commercial channels is set to take place in September 2013, although this date is still subject to the change. Currently, only the process below up until May has been completed.
Ex 18: Timeline For Digital TV Transformation
May July Aug-13 Sep-13 Oct-13 Jan-14
Granting of network Bidding for 24 service licenses commercial channels Broadcasting 24 Public hearings commercial digital TV on the draft channels
Granting 12 public Draft of regulations and TV licenses Distribute coupons to bidding process for 24 subsidize set-top-box commercial channels converters
Sources: NBTC, Thanachart estimates Key elements in the draft regulations are as follows:
Number of channels Number of channels: Exhibit 9 in the earlier section of this report shows that the NBTC plans a total of 48 channels, divided into 24 commercial, 12 public and 12 community channels. Within the 24 commercial channels they are separated into 7 high-definition (HD) variety, 7 standard (SD) variety, 7 news and 3 children’s channels. Exhibit 8 also shows our expectation for each company’s interest in channel categories.
Bidding prices Bidding prices: The NBTC has announced the starting bidding price for each category in the range of Bt140m to Bt1.5bn per license.
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Ex 19: Starting Bidding Price For Each Category
Category Minimum bidding price per license (Bt m) Variety in HD format 1,500 Variety in SD format 380 News in SD format 220 Children’s in SD format 140 Source: NBTC
Payments in installments Payment timeline: There are two tranches for the payments – four-year installments for the starting bidding prices and six-year installments for the incremental bidding price above the starting prices.
Ex 20: Timeframe For Payments From The Digital TV Bidding
2014 2015 2016 2017 2018 2019 % payment of starting price 50% 30% 10% 10% ─ ─ % payment of incremental price from the starting price 10% 10% 20% 20% 20% 20% Source: NBTC
Network penetration rate Infrastructure and network timeline: As shown in Exhibit 10, the NBTC requires infrastructure and network providers to reach penetration rates of 50% in 2014, 80% in 2015, 90% in 2016 and full penetration in 2017.
Fears over network rental Network rental fee: The NBTC’s rental fee guidance is Bt40m-60m per channel per year, fee being too high but we though this is not yet finalized. Currently, there are concerns among mid- and small players aren’t particularly worried that the fee might end up being much higher than the current guidance because of hefty network investment costs. If it’s too high, say, more than Bt100m per year per channel, mid- to small bidders might find it too expensive to operate under the digital TV platform.
Having said that our view is this. Given that the NBTC’s main mission now is to ensure the digital TV platform materializes and that it’s feasible for large and mid-size players to participate in so that the platform is solid with strong players, we therefore expect the NBTC to be reasonable in regulating network rental fees to allow normal profit levels for network operators and renters.
NBTC plans to subsidize Digital set-top boxes: The NBTC plans to use the proceeds from the bidding for digital digital set-top boxes licenses to subsidize the cost of the set-top boxes for households in order to speed up penetration. For households that still watch TV via antennas, they would need a digital set- top box to convert the signal to be able to watch digital channels or alternatively buy new TVs that can accept digital signals. For households that watch TV via satellite dishes and cable, it is still unclear at this stage whether most existing set-top boxes can accept the digital signals; new set-top box models might therefore be needed.
Broadcasting required Broadcasting timeline: The NBTC requires TV license bid winners to start digital within three months from broadcasting within three months of being awarded the licenses. As shown in Exhibit 14, if award of licenses we assume the licenses are awarded within September, the starting date for broadcasting would then have to be in January 2014.
Must-carry rule is Must-carry rule: The NBTC plans to force all TV platforms, including satellite and cable TV, important but details are to carry digital terrestrial TV channels as their No.1 priority. The must-carry rule is very still uncertain important because making all TV platforms carry digital channels would ensure a full penetration rate for digital TV channels among Thai households.
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Currently, it isn’t clear yet whether the rule would be applied to all 48 digital channels or only the 24 public and community channels. There is also a scenario of must-carry for the 24 public and community channels but if any TV platform also wants to carry other commercial digital channels it has to follow the order as shown in Exhibit 21 below. For example, if platform company A wants to carry HD variety channels, it has to also carry all other preceding channels. If company A only wants to carry news channels, it would have to carry children’s channels but not SD and HD variety channels. Note that we view it as likely that top players such as BEC’s Channel 3 and Channel 7 would also bid for HD variety channels. On most TV platforms, the key drawers of eyeballs to those platforms are the top content makers Channel 3 and Channel 7. We expect most TV platforms to want to carry both of these channels.
Ex 21: Potential Order Of Commercial Channel Must-Carry Rule
Children's News Variety SD Variety HD 3 channels 7 channels 7 channels 7 channels
Source: NBTC
We see the merit of the must-carry rule as helping to ensure a high penetration rate for digital TV channels. The NBTC plans to enforce this rule to make sure that most existing top free TV channels (channel, 3, 7 and 9) and satellite TV channels (RS, GRAMMY, WORK, NMG etc.) join the bid to make digital TV materialize under a scenario of industry liberalization that should lead to more players. A low penetration rate wouldn’t attract enough interest from top players in our view.
The current fuss about The current fuss about the must-carry rule is about whether or not the NBTC might also the must-carry rule force all the TV platforms to carry all 24 commercial digital channels. If this is the case, we involves fears of low see most top- and mid-scale players wanting to bid for digital licenses. But if it isn’t the penetration case, we would expect less interest in the licenses. Exhibit 22 below shows the current breakdown of existing TV platforms where 78% of households are on satellite and cable TV and 22% are still using antennas.
Ex 22: Current Structure Of Thai Household TV Receivers
TRUE 9% Local cable 11%
Satellite TV 58%
Antenna 22%
Source: Thanachart compilation
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SECTOR NOTE KALVALEE THONGSOMAUNG
We take the view that the So, the risk that we see is that if there is no must-carry rule for the 24 commercial channels, NBTC would try to ensure then 78% of households may not necessarily be able to watch 24 digital channels. The 22% high penetration of antenna-based households would be able to watch them as they would have subsidized converter set-top boxes from the NBTC. Our view is as follows:
As mentioned in the “What is the end game?” section earlier in this report, we strongly believe that the NBTC would try to make sure that the digital TV platform materializes in such a way as to bring in both existing free terrestrial TV players and key players in other platforms, including RS, GRAMMY, WORK, etc. To attract those guys, we expect the NBTC would have to make sure that digital platform penetration is high, implying a favorable solution for all players relating to the must-carry rule. To us, even if the must-carry rule doesn’t apply to the 24 commercial channels, we believe there’s still a scenario whereby the NBTC could ensure high penetration. That is, there would have to be a rule that if any TV platform wants to carry other commercial digital channels it would have to follow the order as shown in Exhibit 21 above. The logic to this is that both satellite TV and cable TV platforms want their platforms to carry Channel 3 (BEC) and Channel 7 as these two channels draw the most eyeballs to their platforms. We see both channels as being likely to bid for HD variety channels. So, any TV platform wanting to carry these two channels would also have to carry almost all the other digital TV channels. Under this scenario, the actual number for each channel would also be fixed for most digital channels on most platforms. The particular channel numbering is very important for mid- and smaller players whose content is not as strong as Channel 3 and Channel 7’s because it helps viewers remember the number and find the channel more easily.
Ex 23: Impact With Enforcement Of the Must Carry Rule And Without
Impact With Must Carry Rule Without Must Carry Rule Penetration Above 50% penetration Less than 50% penetration on the first day of broadcasting
Numbering of channels Same for all platforms: Different for all platforms: advantages for content providers disadvantages for content providers, particularly medium-small players Source: Thanachart estimates
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SECTOR NOTE KALVALEE THONGSOMAUNG
Healthy total ad spending
We expect total adex We have been focused in this report on digital TV transformation as TV adex is the largest growth of 12% and TV contributor at 62% of Thailand’s total adex pool. Apart from healthy TV adex growth, we adex growth of 7% in foresee strong adex growth for out-of-home (transit, in-store and outdoor) and cinema 2013 media too. We project Thailand’s total adex to grow from Bt116bn in 2012 to Bt124bn in 2013, implying 12% growth this year while we forecast TV adex to grow at 7%. This year’s estimated TV adex growth of 7% might look not too high compared with last year’s 9.4% but it needs to be borne in mind that last year’s figure reflected the pent-up ad spending after We foresee healthy adex the floods in late 2011. We therefore believe that growth this year should be driven by growth for TV, out-of- greater competition in the auto, consumers and beverage sectors as well as the launch of home and cinema media 3G network campaigns by the telecom companies as shown in Exhibit 26.
Ex 24: Total Adex Growth And TV Adex Growth
(y-y %) ADEX TV 20
15
10
5
0
(5) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 5M13
Source: The Nielsen Company as of May 2013
Ex 25: Ad Spending By Media Type Ex 26: Top 10 Brands’ Ad Spending
Transit, 3% In store, 2% Insurance Internet, Outdoor 4% 9% 0.4% Telecom Consumer Cinema, 5% 31% Products Magazine 17% 5%
New spaper TV, 62% 14% Beverage 13%
Radio, 5% Auto 30%
Source: The Nielsen Company as of May 2013 Source: The Nielsen Company as of May 2013
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SECTOR NOTE KALVALEE THONGSOMAUNG
VGI and RS are our top sector picks
Ex 27: Sector Valuation Sector Valuation Current Target Norm EPS grw ⎯ Norm PE ⎯ ⎯ EV/EBITDA ⎯ ⎯ Div yield ⎯ BBG price price 2013F 2014F 2013F 2014F 2013F 2014F 2013F 2014F Company Code Rec. (Bt) (Bt) (%) (%) (x) (x) (x) (x) (%) (%) Bec World BEC TB HOLD 63.75 68.00 24.2 14.4 21.5 18.8 13.0 11.5 4.5 5.2 Gmm Grammy GRAMMY TB SELL 19.10 16.00 na na na na 44.1 11.8 0.0 0.0 Major Cineplex MAJOR TB BUY 21.20 28.00 56.9 18.3 18.7 15.8 9.9 9.5 4.8 5.7 MCOT Pcl MCOT TB SELL 45.50 38.50 2.1 9.0 17.4 16.0 11.9 11.0 5.2 5.6 RS Pcl RS TB BUY 9.85 14.50 66.2 39.9 21.6 15.4 12.6 11.2 3.2 3.9 VGI Global VGI TB BUY 130.00 165.00 49.4 33.3 30.5 22.9 22.3 16.5 2.8 3.7 Sources: Company data, Thanachart estimates (Based on 11 June 2013 closing prices) Note: VGI’s fiscal year-end is in March. We look at VGI’s FY14F (April 2013 – March 2014) numbers to compare with other companies’ 2013F figures.
We UNDERWEIGHT the Although we rate the Thai media sector as UNDERWEIGHT as we now see a less Thai media sector favorable valuation and earnings growth matrix, we like VGI and RS as we forecast them to enjoy the strongest 2013-14F earnings growth while we also see them enjoying a more attractive long-term business outlook.
VGI – strongest Apart from our positive view on VGI’s earnings quality, we like the company as we believe it fundamentals, best has the strongest fundamentals and the best business model in the sector. To recap, VGI business model and earns most of its earnings from its own parent, the skytrain operator BTS Group Holdings highest earnings growth (BTS TB, Buy, Bt7.90, TP Bt9.3) which has a plan to bid two additional skytrain lines. We in our view see this providing upside to our forecasts for VGI. The other part of VGI’s income is from its growing modern trade business where we foresee aggressive expansion over the next three years. We project VGI’s FY14 earnings growth (fiscal year-end in March) at 49%, driven by more skytrain carriages and extension lines, rising utilization of modern trade ad space and ad rate increases together with retail branch expansion. For the industry, transit adex has grown impressively at 27% YTD, outperforming total adex growth of only 1.6% YTD.
RS – strongest 2013-14F With the strongest earnings growth and an undemanding valuation on our estimates, we earnings growths of 66% have RS as another top sector pick. We see RS as the best play on both the satellite TV and 40%, on our platform and the upcoming digital TV platform. This is because of its strong position with the estimates largest satellite TV adex market share. RS is now enjoying rising ad rates for its top rating satellite TV Channel 8 and Sabaidee TV. With the success of its content on the satellite TV platform, we see RS emerging as a more serious mainstream TV play under the digital TV platform which we expect to become RS’s next growth driver.
Ex 28: Media Stock Earnings Growth And Valuation Matrix
PE ( x ) 35
30 VGI
25
RS 20 BEC MA JOR 15 MCOT
2013-15F EPS CAGR (%) 10 0 5 10 15 20 25 30
Sources: Company data, Thanachart estimates Note: VGI’s fiscal year-end is in March. We look at VGI’s FY14F (April 2013 – March 2014) numbers to compare with other companies’ 2013F figures; we forecast GRAMMY to be loss making in 2013-14
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SECTOR NOTE KALVALEE THONGSOMAUNG
VGI: Creativity driving growth
Ex 29: Valuation Table Ex 30: Solid Earnings Growth and Best Business Model in
The Sector Y/E Mar (Bt m) 2013A 2014F 2015F 2016F (Bt m) Sales 2,838 3,810 4,889 5,533 2,500 Net profit 908 1,408 1,876 2,187 Norm profit 908 1,408 1,876 2,187 2,000 Norm EPS (Bt) 2.9 4.3 5.7 6.6 1,500 Norm EPS grw (%) 209.0 49.4 33.3 16.6 Norm PE (x) 45.5 30.5 22.9 19.6 1,000 EV/EBITDA (x) 32.0 22.3 16.5 14.0
P/BV (x) 24.1 19.5 16.0 13.7 500 Div yield (%) 1.8 2.8 3.7 4.3 ROE (%) 89.2 70.8 76.9 75.2 0 Net D/E (%) (69.1) (83.9) (87.2) (95.9) FY11 FY12 FY13 FY14F FY15F FY16F
Sources: VGI, Thanachart estimates Note: VGI’s fiscal year-end is in March. We look at VGI’s FY14F (April 2013 – March 2014) numbers to compare with other companies’ 2013F figures.
VGI – BUY, Price Bt130.00, TP Bt165.00 VGI is one of our top VGI is one of the top country picks of Pimpaka Nichgaroon, Thanachart’s Head of country picks and our Research, as well as our top pick in the Thai media sector. We like VGI as we believe it sector pick enjoys the strongest fundamentals and has the best business model in the sector. VGI manages the ad space on BTS’s skytrain network, including stations and trains. It has also secured exclusive contracts with modern trade retailers such as Tesco Lotus (not rated), Big C Supercenter Plc (BIGC TB) and Watsons (not rated) to manage their ad space. VGI dominates the VGI dominates the growing out-of-home media market with a 44% market share of the growing out-of-home mass transit media sector and 33% of the in-store media sector. This has allowed VGI media market to enjoy the benefits of its stronger bargaining power.
Strong EPS CAGR of 25% We forecast VGI to post strong earnings growth with an EPS CAGR of 25% over FY14- over FY14-16F driven by 16F, driven by its two major advertising businesses, skytrain and modern trade. We additional ad space from expect VGI to enjoy additional ad space given more skytrain stations and carriages this the skytrain business … year. We foresee a capacity increase for digital media at skytrain stations with new LED screens replacing poster lightbox trusses that should help improve VGI’s advertising effectiveness by catching more eyeballs.
…. and higher ad income Apart from its BTS-related business, we expect VGI’s advertising income from modern from modern trade trade retailers to be a key growth driver as we forecast much higher utilization, rising from 35% in FY13F to 55% to 63% in FY14F and FY15F.
Stronger bargaining Given its stronger bargaining power, we expect VGI’s plan to implement a tied selling power should help strategy by offering new product packages tying the sellable ad space on the BTS improve its performance Skytrain system with ad space in office buildings, modern trade outlets and on outdoor LEDs. We therefore project a higher overall average ad rate and occupancy rate.
We see upside from Because of its high economies of scale, we believe this has allowed VGI to compete additional ad space well in bidding for new ad space management, particularly on new skytrain lines. We thus leave the potential additional ad space as upside.
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SECTOR NOTE KALVALEE THONGSOMAUNG
RS: Best liberalization play
Ex 31: Valuation Table Ex 32: Strong Earnings Growth
Y/E Dec (Bt m) 2012A 2013F 2014F 2015F (Bt m) Sales 2,812 3,536 4,057 4,836 700 Net profit 281 467 654 627 600 Norm profit 281 467 654 627 500 Norm EPS (Bt) 0.3 0.5 0.6 0.6 Norm EPS grw (%) 40.2 66.2 39.9 (4.1) 400
Norm PE (x) 35.8 21.6 15.4 16.1 300 EV/EBITDA (x) 22.9 12.6 11.2 8.6 200 P/BV (x) 8.0 6.4 5.4 4.8 Div yield (%) 2.5 3.2 3.9 3.7 100
ROE (%) 23.3 33.1 38.1 31.6 0 Net D/E (%) 8.8 1.7 31.5 25.3 2010 2011 2012 2013F 2014F 2015F
Sources: RS, Thanachart estimates
RS – BUY, Price Bt9.85, TP Bt14.50
RS, one of our top sector RS has been one of our top sector picks since last year and we still like the stock as we picks, offers the sector’s see it offering the best growth outlook in the sector with an undemanding valuation. We strongest growth forecast a 2013-15F EPS CAGR of 16% with an undemanding valuation at 2013F PE of 21.6x and a current price at a 32% discount to our new TP.
RS is still the best play We continue to believe that RS is the best play on the satellite TV platform as its on the satellite TV satellite TV channels have been at the top of the satellite TV ratings for years and we platform in our view have seen a strong improvement in the trend for eyeballs, particularly for RS’s flagship channels Channel 8 and Sabaidee TV.
Satellite TV revenues Given the strong growth in advertising spending, the growing satellite TV and cable TV continue to post solid platforms and its quality content, RS’s satellite TV revenues posted solid growth of growth of 30-100% in 126% in 2012 while we forecast another 100% in 2013 and 30% in 2014. We believe 2013-14F key drivers have been an ad rate hike of 12% in 2012 (we expect a further 42% and 36% in 2013-14) and a strengthening utilization rate (we forecast an increase from 61% in 2012 to 65% in 2013 and 66% in 2014). We therefore see the strong momentum of its satellite TV business continuing.
Also the best play on Given upcoming media liberalization via the digital TV license bidding, we expect RS to upcoming on media move to the digital TV platform and we see RS as the best play on liberalization. With liberalization in our the must-carry rule forcing all TV platforms to broadcast digital TV, we expect a higher opinion penetration on the digital TV platform versus satellite and cable TV’s current penetration of 78%. We foresee a potential upgrade in ad rates from the low base on satellite TV to digital TV.
We see a clear earnings We see clear earnings drivers lining up for RS in 2013-14. We forecast 2013-14 story in 2013-14F with earnings growth of 66% and 40% being driven by strong growth in its satellite TV earnings growth of 66% business. On top of that, we expect a profit boost in 2014F from it winning the right to and 40% broadcast the 2014 World Cup. We see profit generation from its core satellite TV business being more than enough to cover start-up costs related to the launch of digital TV over 2014-16.
Digital TV should be RS’s In the longer term, we see digital TV emerging as RS’s next growth driver. next growth driver
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SECTOR NOTE KALVALEE THONGSOMAUNG
MAJOR: Growth path firms up
Ex 33: Valuation Table Ex 34: MAJOR – BUY, Price Bt21.20, TP Bt28.00
Y/E Dec (Bt m) 2012A 2013F 2014F 2015F We see MAJOR enjoying the clearest short-term share Sales 6,965 7,029 7,683 8,235 price catalyst from outstanding forecast 2Q13 results Net profit 811 1,006 1,190 1,355 driven by very high box-office revenues. Norm profit 641 1,006 1,190 1,355 Norm EPS (Bt) 0.7 1.1 1.3 1.5 MAJOR is enjoying higher contributions from its high- Norm EPS grw (%) (17.9) 56.9 18.3 13.9 margin F&B and advertising businesses which is Norm PE (x) 29.3 18.7 15.8 13.9 helping to expand its margin. Rising retail growth and fierce competition among top-spending industries have EV/EBITDA (x) 12.4 9.9 9.5 8.8 been pushing up F&B and ad revenues. P/BV (x) 3.0 2.9 2.8 2.7 Div yield (%) 4.1 4.8 5.7 6.5 We see its aggressive expansion plan particularly in ROE (%) 10.5 15.8 18.1 20.0 the provinces as riding the urbanization trend for its Net D/E (%) 37.1 31.9 25.8 20.6 long-term growth path. We view MAJOR’s valuation as undemanding at PE of 18.7x, supported by strong forecast earnings growth in those years.
Sources: MAJOR, Thanachart estimates
BEC: Fairly valued
Ex 35: Valuation Table Ex 36: BEC – HOLD, Price Bt63.75, TP Bt68.00
Y/E Dec (Bt m) 2012A 2013F 2014F 2015F We believe BEC is fairly priced at its current valuation Sales 14,866 16,593 19,114 20,762 versus earnings growth matrix. Net profit 4,777 5,935 6,788 7,683 Norm profit 4,777 5,935 6,788 7,683 The upcoming digital TV platform should liberalize the Norm EPS (Bt) 2.4 3.0 3.4 3.8 media industry competitive landscape from an Norm EPS grw (%) 35.3 24.2 14.4 13.2 oligopoly now. We don’t see the TV adex pie growing Norm PE (x) 26.7 21.5 18.8 16.6 fast enough to accommodate the number of new digital TV players. EV/EBITDA (x) 15.0 13.0 11.5 10.3 P/BV (x) 15.8 14.3 13.4 12.5 We thus expect BEC to have to share the adex market with other content providers and we see BEC’s pricing Div yield (%) 3.5 4.5 5.2 5.8 power to lift ad rates as being limited. ROE (%) 62.3 69.9 73.8 78.1 In preparation for media liberalization, given that it’s in Net D/E (%) (37.2) (46.0) (45.9) (49.8) the leading position BEC may try to raise ad rates as much as possible on its analog platform before digital TV is functioning fully.
Sources: BEC, Thanachart estimates
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SECTOR NOTE KALVALEE THONGSOMAUNG
MCOT: Victim of liberalization
Ex 37: Valuation Table Ex 38: MCOT – SELL, Price Bt45.50, TP Bt38.50
Y/E Dec (Bt m) 2012A 2013F 2014F 2015F We see MCOT being affected the most by media Sales 5,683 6,323 8,285 8,553 industry liberalization as a result of intensifying Net profit 1,759 1,796 1,958 2,007 competition, the possibility of losing its high-rating Norm profit 1,759 1,796 1,958 2,007 programs, an absence of concession revenues and Norm EPS (Bt) 2.6 2.6 2.8 2.9 higher costs on the digital TV platform. Norm EPS grw (%) 29.7 2.1 9.0 2.5 We believe MCOT still lacks the key factor for success Norm PE (x) 17.8 17.4 16.0 15.6 – content. MCOT’s self-produced programs are not EV/EBITDA (x) 11.6 11.9 11.0 10.6 ratings pullers. P/BV (x) 3.9 3.8 3.7 3.6 We forecast uninspiring earnings growth for MCOT Div yield (%) 5.1 5.2 5.6 5.8 despite factoring in additional income from the digital ROE (%) 22.6 22.2 23.6 23.5 TV platform. Net D/E (%) (10.2) (12.2) (2.6) (1.6) Although MCOT is the cheapest media stock on our estimates, we prefer to pay for those with more attractive forecast earnings growth such as VGI and RS.
Sources: MCOT, Thanachart estimates
GRAMMY: No turnaround in sight
Ex 39: Valuation Table Ex 40: GRAMMY – SELL, Price Bt21.20, TP Bt16.00
Y/E Dec (Bt m) 2012A 2013F 2014F 2015F We expect GRAMMY to post 2013-14F net losses as Sales 11,435 11,218 12,629 13,757 we forecast a poor performance from its pay-TV GMM Net profit (347) (480) (313) 593 Z given fierce competition in the pay-TV business in Norm profit (367) (480) (313) 593 Thailand. Norm EPS (Bt) (0.7) (0.9) (0.6) 1.1 Norm EPS grw (%) na na na na GRAMMY’s huge capex cycle is far from over in our Norm PE (x) na na na 17.1 view as we expect it to have to invest to support its pay-TV business and for the additional cost of moving EV/EBITDA (x) 28.9 44.1 11.8 6.2 to the digital TV platform over the next few years. P/BV (x) 3.4 4.0 4.6 3.6 We see its funding source mainly being financial Div yield (%) 0.0 0.0 0.0 0.0 institutions which we expect to result in a jump in its ROE (%) na na na 23.8 D/E and a deteriorating balance sheet. Net D/E (%) 71.1 90.3 162.0 142.1 We see its loss-making pay-TV business wiping out the decent forecast profitability of its other businesses – music, movie and media.
Sources: GRAMMY, Thanachart estimates
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SECTOR NOTE KALVALEE THONGSOMAUNG
Ex 41: Sector Valuation Comparison BEC GRAMMY MAJOR MCOT RS VGI Industry Rating HOLD SELL BUY SELL BUY BUY Market cap (US$ m) 4,307 342 636 1,056 297 1,318 Target price (Bt) Thanachart 68.00 16.00 28.00 38.50 14.50 165.00 Consensus 66.00 17.35 26.00 50.75 12.50 131.82 Consensus rec. BUY 10.0 0.0 19.0 7.0 4.0 6.0 HOLD 6.0 0.0 4.0 10.0 2.0 2.0 SELL 8.0 6.0 2.0 3.0 2.0 3.0
Sales (Bt m) 2012 14,866 11,435 6,965 5,683 2,812 2,838 44,599 2013F 16,593 11,218 7,029 6,323 3,536 3,810 48,507 2014F 19,114 12,629 7,683 8,285 4,057 4,889 56,657 2015F 20,762 13,757 8,235 8,553 4,836 5,533 61,676 Norm profits 2012 4,777 (367) 641 1,759 281 908 8,000 (Bt m) 2013F 5,935 (480) 1,006 1,796 467 1,408 10,132 2014F 6,788 (313) 1,190 1,958 654 1,876 12,152 2015F 7,683 593 1,355 2,007 627 2,187 14,452 Sales growth (%) 2012 16.1 25.6 3.2 11.0 3.0 43.5 25.1 2013F 11.6 (1.9) 0.9 11.3 25.7 34.2 8.8 2014F 15.2 12.6 9.3 31.0 14.7 28.3 16.8 2015F 8.6 8.9 7.2 3.2 19.2 13.2 8.9 Norm EPS 2012 35.3 na (17.9) 29.7 40.2 209.0 19.1 growth (%) 2013F 24.2 na 56.9 2.1 66.2 49.4 26.6 2014F 14.4 na 18.3 9.0 39.9 33.3 19.9 2015F 13.2 na 13.9 2.5 (4.1) 16.6 18.9 Operating 2012 41.5 (3.2) 9.1 36.5 12.5 40.8 22.5 margin (%) 2013F 44.5 (6.2) 13.4 31.9 18.7 44.6 24.8 2014F 44.1 (3.8) 13.4 26.0 16.0 46.3 24.8 2015F 45.8 4.5 14.1 25.7 16.5 47.7 27.5 ROE (%) 2012 62.3 na 10.5 22.6 23.3 89.2 31.8 2013F 69.9 na 15.8 22.2 33.1 70.8 36.0 2014F 73.8 na 18.1 23.6 38.1 76.9 38.5 2015F 78.1 23.8 20.0 23.5 31.6 75.2 36.3 Dividend yield 2012 3.5 0.0 4.1 5.1 2.5 1.8 3.2 (%) 2013F 4.5 0.0 4.8 5.2 3.2 2.8 3.6 2014F 5.2 0.0 5.7 5.6 3.9 3.7 4.1 2015F 5.8 0.0 6.5 5.8 3.7 4.3 4.5 P/BV (x) 2012 15.8 3.4 3.0 3.9 8.0 24.1 8.3 2013F 14.3 4.0 2.9 3.8 6.4 19.5 7.9 2014F 13.4 4.6 2.8 3.7 5.4 16.0 7.5 2015F 12.5 3.6 2.7 3.6 4.8 13.7 7.0 Norm PE (x) 2012 26.7 na 29.3 17.8 35.8 45.5 29.9 2013F 21.5 na 18.7 17.4 21.6 30.5 23.8 2014F 18.8 na 15.8 16.0 15.4 22.9 19.8 2015F 16.6 17.1 13.9 15.6 16.1 19.6 16.7 EV/EBITDA (x) 2012 15.0 28.9 12.4 11.6 22.9 32.0 17.0 2013F 13.0 44.1 9.9 11.9 12.6 22.3 19.7 2014F 11.5 11.8 9.5 11.0 11.2 16.5 11.0 2015F 10.3 6.2 8.8 10.6 8.6 14.0 9.0 Net D/E (x) 2012 (0.4) 0.7 0.4 (0.1) 0.1 (0.7) 0.0 2013F (0.5) 0.9 0.3 (0.1) 0.0 (0.8) (0.0) 2014F (0.5) 1.6 0.3 (0.0) 0.3 (0.9) 0.1 2015F (0.5) 1.4 0.2 (0.0) 0.3 (1.0) 0.1
Sources: Company data; Thanachart estimates Note: VGI’s fiscal year-end is in March. We look at VGI’s FY14F (April 2013 – March 2014) numbers to compare with other companies’ 2013F figures. Based on 11 June 2013 closing prices
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APPENDIX KALVALEE THONGSOMAUNG
STOCK PERFORMANCE
Absolute (%) Rel SET (%) 1M 3M 12M YTD 1M 3M 12M YTD SET INDEX (10.5) (7.9) 25.4 4.4 — — — — Media (11.6) (9.6) 39.5 3.4 (1.2) (1.7) 14.1 (0.9) BEC TB (12.1) (8.6) 20.9 (10.2) (1.6) (0.7) (4.6) (14.6) GRAMMY TB (19.4) (23.6) (27.2) 9.1 (8.9) (15.7) (52.7) 4.8 MAJOR TB (10.5) (0.5) 17.8 11.6 (0.1) 7.5 (7.7) 7.2 MCOT TB (9.0) (14.6) 61.1 (3.2) 1.5 (6.6) 35.6 (7.6) RS TB (17.9) (17.9) 170.6 68.4 (7.4) (10.0) 145.2 64.0 VGI TB (0.7) 2.1 na 54.6 9.8 10.1 na 50.2
Source: Bloomberg
SECTOR - SWOT ANALYSIS
S — Strength W — Weakness
Balance sheets of all operators are very strong with net cash Relatively high regulatory risks with the NBTC.
positions. Tied to domestic consumption and sentiment.
We expect total advertising spending to continue growing.
TV advertising is dominant in Thailand with a strong growth trend.
O — Opportunity T — Threat
We expect a 100% penetration rate for digital TV. TV and radio frequency return requirement.
Robust growth in satellite and cable TV. Higher operating costs from digital TV license fee and revenue sharing with the broadcasting fund. Advanced technology i.e. 3G, music streaming, digital broadcasting should support growth. Huge capex requirements for digital TV broadcasting.
REGIONAL COMPARISON —EPS growth— ——— PE ——— ——— P/BV ——— —– EV/EBITDA —– —— Div. Yield —— Name 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F (%) (%) (x) (x) (x) (x) (x) (x) (%) (%) China 8.4 11.5 23.5 21.0 na na 5.1 4.7 1.5 1.7 Hong Kong (3.9) 11.6 14.9 13.2 2.4 2.1 7.7 6.8 2.5 2.8 India (83.2) (49.0) 22.1 18.5 6.5 5.9 14.8 12.2 2.6 3.0 Indonesia (5.8) 23.1 20.0 16.2 3.7 3.2 10.2 8.5 2.3 2.7 Malaysia 26.7 (16.8) 14.4 17.3 1.5 1.4 6.6 6.9 2.0 1.4 Philippines 53.4 7.9 19.0 17.5 7.9 7.4 14.9 13.0 3.7 4.3 Thailand 26.6 19.9 23.8 19.8 8.5 7.7 19.0 11.9 3.4 4.0 Average 3.2 1.2 19.7 17.6 5.0 4.5 12.7 9.6 2.7 3.1 BEC TB 24.2 14.4 21.5 18.8 14.3 13.4 13.0 11.5 4.5 5.2 GRAMMY TB na na na na 4.0 4.6 44.1 11.8 0.0 0.0 MAJOR TB 56.9 18.3 18.7 15.8 2.9 2.8 9.9 9.5 4.8 5.7 MCOT TB 2.1 9.0 17.4 16.0 3.8 3.7 11.9 11.0 5.2 5.6 RS TB 66.2 39.9 21.6 15.4 6.4 5.4 12.6 11.2 3.2 3.9 VGI TB 49.4 33.3 30.5 22.9 19.5 16.0 22.3 16.5 2.8 3.7 Average 26.6 19.9 23.8 19.8 8.5 7.7 19.0 11.9 3.4 4.0
Sources: Bloomberg Consensus Note: * Thanachart estimate – using normalized EPS When a report covers six or more subject companies please access important disclosures for Daiwa Capital Markets Hong Kong Limited at http://www.daiwacm.com/hk/research_disclaimer.html or contact your investment representative or Daiwa Capital Markets Hong Kong Limited at Level 26, One Pacific Place, 88 Queensway, Hong Kong.
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 21
HOLD (From Buy) TP: Bt 68.00 (From Bt 76.00 ) 12 JUNE 2013
Change in Recommendation Upside : 6.7%
BEC World Pcl (BEC TB)
Fairly valued
We downgrade our call on BEC from Buy to HOLD as we believe it is fairly priced at its current valuation versus its earnings growth KALVALEE THONGSOMAUNG matrix. In addition, we expect upcoming industry liberalization to 662 – 617 4900 weaken BEC’s market position and limit its ability to hike ad rates. [email protected]
Downgrade to HOLD COMPANY VALUATION We downgrade BEC from Buy to HOLD with a lower 12-month DCF-based TP of Bt68.0/share from Bt76.0 previously for three Y/E Dec (Bt m) 2012A 2013F 2014F 2015F key reasons. 1) We see BEC as fairly priced at its current Sales 14,866 16,593 19,114 20,762 valuation level versus its earnings growth matrix. The counter Net profit 4,777 5,935 6,788 7,683 trades at what we view as a demanding 2013 PE of 21.5 while we Consensus NP ⎯ 5,806 6,401 7,060 forecast 2013 EPS growth of 24%, declining to 14% in 2014F. Diff frm cons (%) ⎯ 2.2 6.0 8.8 Second, we see upcoming media liberalization hurting BEC as we Norm profit 4,777 5,935 6,788 7,683 expect it to bring more players in to share the TV adex pool; Prev. Norm profit ⎯ 5,908 6,400 6,891 hence, lowering BEC’s ability to hike ad rates over the long term. Chg frm prev (%) ⎯ 0.4 6.1 11.5 Third, we see only 6.7% share price upside to our new TP. Norm EPS (Bt) 2.4 3.0 3.4 3.8
From oligopoly to liberalization Norm EPS grw (%) 35.3 24.2 14.4 13.2
Norm PE (x) 26.7 21.5 18.8 16.6 We expect the upcoming bid for 24 digital TV channels to draw more players into the media market. Thailand’s TV ad spending of EV/EBITDA (x) 15.0 13.0 11.5 10.3 Bt70bn which is shared by just three major operators on the P/BV (x) 15.8 14.3 13.4 12.5 analog TV platform (a combined 80% market share) should entice Div yield (%) 3.5 4.5 5.2 5.8 new digital TV plays to enter. Although we see the TV adex pie ROE (%) 62.3 69.9 73.8 78.1 growing reasonably well at 7-8% p.a., we don’t expect the growth Net D/E (%) (37.2) (46.0) (45.9) (49.8) to be rapid enough to accommodate all of the new digital TV players. We therefore see BEC’s adex market share being pooled PRICE PERFORMANCE with other content providers while forgone cartel pricing power Thanachart Securities should limit its ability to increase ad rates in the future. (Bt/shr) (%) BEC Rel to SET Index 80 40 Unattractive earnings growth 30 70 We see BEC trying to raise ad rates as much as possible on its 20 60 10 analog platform before digital TV is functioning fully, which we 0 50 expect in 2017. We forecast ad rate hikes of 8-12% p.a. in 2013- (10) 16. As there is not much room for BEC to lift volume growth, ad 40 (20) J u n - 12 O c t - 12 F eb - 13 J u n - 13
Thanachart Securities rate hikes and the leverage effect are the key drivers for our
projection for a five-year EPS CAGR of 13% p.a. In the digital TV era, aside from its top-line growth being adversely affected by COMPANY INFORMATION rising competition, we expect costs of running digital TV to be far higher than existing analog concession costs. In addition to Price as of 11-Jun-13 (Bt) 63.75 license fees for HD variety channels, BEC would have to pay Market cap (US$ m) 4,307.4 network rental fees and revenue sharing to the NBTC totaling Listed shares (m shares) 2,000.0 6-8% of total revenues versus an existing fixed analog concession Free float (%) 50.9 fee of 1.3%. That said we see BEC’s long-term earnings growth Avg daily turnover (US$ m) 6.3 slowing down from 10% p.a. to 4% p.a. from 2017 onwards. 12M price H/L (Bt) 79.5/47.5 Switch to VGI and RS Sector Media Although we like BEC’s fundamentals given its strong market Major shareholder Maleenont Family 45.5%
position and solid balance sheet, we don’t view the counter as Sources: Bloomberg, Company data, Thanachart estimates cheap and we see it being negatively impacted by upcoming media industry liberalization. We recommend switching to our top picks, VGI Pcl (VGI TB, Bt130, Buy) and RS Pcl (RS TB, Bt9.85, Buy), for which we forecast higher earnings growth, less impact from industry liberalization and cheaper valuations.
Please see the important notice on the back page
COMPANY NOTE BEC KALVALEE THONGSOMAUNG
Ex 1: 12-month DCF-based TP Calculation Terminal (Bt m) 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F Value
EBITDA 9,50210,703 11,843 13,060 13,486 13,498 13,401 13,587 13,756 14,006 14,182 14,550 —
Free cash flow 7,728 8,098 9,329 10,602 11,019 11,068 11,051 11,222 11,363 11,556 11,704 11,981 169,736
PV of free cash flow 7,706 6,793 7,166 7,456 7,096 6,527 5,968 5,549 5,145 4,792 4,444 4,165 59,005
Risk-free rate (%) 4.0
Market risk premium (%) 8.0
Beta 0.7
Wacc (%) 9.2
Terminal growth (%) 2.0
Enterprise value - add investments 131,813
Net debt (4,275)
Minority interest 225
Equity value 135,863
# of shares 2,000 Equity value/share 68.00 Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 23
APPENDIX BEC KALVALEE THONGSOMAUNG
COMPANY DESCRIPTION COMPANY RATING
BEC World Pcl (BEC) is a diversified media holding company. The Financial Rating Scale management firm is involved in: 1) the broadcasting and media businesses, 5 Very Strong 5 including television and radio broadcasting and news media; 2) 4 3 Risk Strong 4 content sourcing, production and distribution; and 3) production and Manage 2 manage sourcing of concerts, shows and campaign activities. ment 1 0 ment Good 3
Fair 2 *Corp. Liquidity governance Weak 1
None 0
Source: Thanachart Source: Thanachart; *CG Awards
THANACHART’S SWOT ANALYSIS
S — Strength W — Weakness
BEC has a very strong balance sheet with a net cash position. Earnings growth now depends on ad hikes given almost full utilization rates, especially for prime-time programs. BEC mostly makes its own programs so its earnings are less
reliant on independent producers. As investment opportunities are few and far between, BEC is
still under-geared. Pricing power remains.
Audience share is in second place behind Channel 7.
O — Opportunity T — Threat
Because BEC makes its own programs, it should be able to Liberalization should bring more competitors to the market
generate additional returns following media industry and erode future profitability. liberalization in 2013. Satellite and cable TV’s increasing market share should offer BEC could launch new channels and create more revenue in more choices to advertisers and could pose a threat to BEC’s
the wake of liberalization. ad rate hikes going forward.
CONSENSUS COMPARISON RISKS TO OUR INVESTMENT CASE
Consensus Thanachart Diff If the cost of producing its own programs is higher than we Target price (Bt) 66.00 68.00 3% currently estimate. Net profit 13F (Bt m) 5,806 5,935 2% If the related costs for the move to digital TV are much higher Net profit 14F (Bt m) 6,401 6,788 6% than we now expect.
Consensus REC BUY: 10 HOLD: 6 SELL: 8 If the development of digital TV is swifter than our current
HOW ARE WE DIFFERENT FROM THE STREET? expectation.
Our 2013-14F earnings are higher than the Street’s as we assume BEC tries to raise ad rates as much as possible on its analog platform before digital TV is fully functional, which we expect in 2017.
Sources: Bloomberg consensus, Thanachart estimates Source: Thanachart
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 24
FINANCIAL SUMMARY BEC KALVALEE THONGSOMAUNG
INCOME STATEMENT FY ending Dec (Bt m ) 2011A 2012A 2013F 2014F 2015F Sales 12,802 14,866 16,593 19,114 20,762 Cost of sales 6,068 6,881 7,179 8,350 8,661 Gross profit 6,734 7,985 9,413 10,763 12,101 % gross margin 52.6% 53.7% 56.7% 56.3% 58.3% Selling & administration expenses 1,650 1,811 2,031 2,338 2,582 Operating profit 5,084 6,174 7,383 8,425 9,519 % operating margin 39.7% 41.5% 44.5% 44.1% 45.8% Depreciation & amortization 1,922 2,116 2,119 2,278 2,323 EBITDA 7,006 8,290 9,502 10,703 11,843 % EBITDA margin 54.7% 55.8% 57.3% 56.0% 57.0% Non-operating income 169 239 265 306 332 Non-operating expenses 0 0 (41) (41) (41) Interest expense (1) (0) (1) 10 22 Pre-tax profit 5,252 6,413 7,607 8,701 9,833 Income tax 1,623 1,498 1,521 1,740 1,967 After-tax profit 3,630 4,914 6,086 6,961 7,867 % net margin 28.4% 33.1% 36.7% 36.4% 37.9% Shares in affiliates' Earnings023273339 Minority interests (99) (160) (178) (206) (223) Extraordinary items 00000 NET PROFIT 3,530 4,777 5,935 6,788 7,683 Norm alized profit 3,530 4,777 5,935 6,788 7,683 EPS (Bt) 1.8 2.4 3.0 3.4 3.8 Normalized EPS (Bt) 1.8 2.4 3.0 3.4 3.8
BALANCE SHEET FY ending Dec (Bt m ) 2011A 2012A 2013F 2014F 2015F ASSETS: Current assets: 6,224 7,081 8,434 8,571 9,627 Cash & cash equivalent 3,147 3,098 4,300 4,200 5,100 Account receivables 907 1,192 1,318 1,519 1,650 Inventories 41000 Others 2,166 2,790 2,815 2,853 2,877 Investments & loans 122 196 196 196 196 Net fixed assets 1,367 1,374 1,430 1,978 2,180 Other assets 2,137 2,122 2,122 2,122 2,122 Total assets 9,849 10,774 12,183 12,868 14,126
LIABILITIES: Current liabilities: 2,046 2,062 2,442 2,236 2,561 Account payables 398 515 492 572 593 Bank overdraft & ST loans 8 1 25 (439) (378) Current LT debt 00000 Others current liabilities 1,639 1,546 1,925 2,103 2,346 Total LT debt 03000 Others LT liabilities 373 402 449 517 561 Total liabilities 2,419 2,467 2,890 2,753 3,123 Minority interest 166 225 403 609 832 Preferreds shares 00000 Paid-up capital 2,000 2,000 2,000 2,000 2,000 Share premium 1,167 1,167 1,167 1,167 1,167 Warrants 00000 Surplus (28) 13 13 13 13 Retained earnings 4,125 4,902 5,709 6,326 6,991 Shareholders' equity 7,264 8,082 8,889 9,506 10,171 Liabilities & equity 9,849 10,774 12,183 12,868 14,126
Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 25
FINANCIAL SUMMARY BEC KALVALEE THONGSOMAUNG
CASH FLOW STATEMENT FY ending Dec (Bt m ) 2011A 2012A 2013F 2014F 2015F Earnings before tax 5,252 6,413 7,607 8,701 9,833 Tax paid (1,686) (1,526) (1,386) (1,673) (1,879) Depreciation & amortization 1,922 2,116 2,119 2,278 2,323 Chg In w orking capital 89 (166) (148) (120) (110) Chg In other CA & CL / minorities 140 (200) 246 105 171 Cash flow from operations 5,717 6,637 8,438 9,291 10,339
Capex 15 (98) (150) (800) (500) ST loans & investments (1,952) (568) 0 0 0 LT loans & investments 6 (75) 0 0 0 Adj for asset revaluation00000 Chg In other assets & liabilities (1,962) (1,983) (1,979) (1,957) (1,981) Cash flow from investm ents (3,894) (2,723) (2,129) (2,757) (2,481) Debt financing (25) (4) 21 (463) 60 Capital increase 00000 Dividends paid (3,600) (4,000) (5,128) (6,170) (7,018) Warrants & other surplus (247) 41 0 0 0 Cash flow from financing (3,871) (3,964) (5,107) (6,634) (6,958)
Free cash flow 5,732 6,539 8,288 8,491 9,839
VALUATION FY ending Dec 2011A 2012A 2013F 2014F 2015F Normalized PE (x) 36.126.721.518.816.6 Normalized PE - at target price (x) 38.5 28.5 22.9 20.0 17.7 PE (x) 36.126.721.518.816.6 PE - at target price (x) 38.5 28.5 22.9 20.0 17.7 EV/EBITDA (x) 17.715.013.011.510.3 EV/EBITDA - at target price (x) 19.0 16.0 13.9 12.3 11.0 P/BV (x) 17.615.814.313.412.5 P/BV - at target price (x) 18.7 16.8 15.3 14.3 13.4 P/CFO (x) 22.319.215.113.712.3 Price/sales (x) 10.0 8.6 7.7 6.7 6.1 Dividend yield (%) 2.8 3.5 4.5 5.2 5.8 FCF Yield (%) 4.5 5.1 6.5 6.7 7.7
(Bt) Normalized EPS 1.8 2.4 3.0 3.4 3.8 EPS 1.82.43.03.43.8 DPS 1.8 2.3 2.9 3.3 3.7 BV/share 3.6 4.0 4.4 4.8 5.1 CFO/share 2.9 3.3 4.2 4.6 5.2 FCF/share 2.9 3.3 4.1 4.2 4.9
Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 26
FINANCIAL SUMMARY BEC KALVALEE THONGSOMAUNG
FINANCIAL RATIOS FY ending Dec 2011A 2012A 2013F 2014F 2015F Grow th Rate Sales (%) 9.3 16.1 11.6 15.2 8.6 Net profit (%) 6.9 35.3 24.2 14.4 13.2 EPS (%) 6.9 35.3 24.2 14.4 13.2 Normalized profit (%) 6.6 35.3 24.2 14.4 13.2 Normalized EPS (%) 6.6 35.3 24.2 14.4 13.2 Dividend payout ratio (%) 102.0 94.2 97.0 97.0 97.0
Operating performance Gross margin (%) 52.653.756.756.358.3 Operating margin (%) 39.7 41.5 44.5 44.1 45.8 EBITDA margin (%) 54.755.857.356.057.0 Net margin (%) 28.433.136.736.437.9 D/E (incl. minor) (x) 0.0 0.0 0.0 (0.0) (0.0) Net D/E (incl. minor) (x) (0.4) (0.4) (0.5) (0.5) (0.5) Interest coverage - EBIT (x) na na na na na Interest coverage - EBITDA (x) na na na na na ROA - using norm profit (%) 36.4 46.3 51.7 54.2 56.9 ROE - using norm profit (%) 47.6 62.3 69.9 73.8 78.1
DuPont ROE - using after tax profit (%) 48.9 64.0 71.7 75.7 80.0 - asset turnover (x) 1.3 1.4 1.4 1.5 1.5 - operating margin (%) 41.0 43.1 45.9 45.5 47.3 - leverage (x) 1.3 1.3 1.4 1.4 1.4 - interest burden (%) 100.0 100.0 100.0 100.1 100.2 - tax burden (%) 69.1 76.6 80.0 80.0 80.0 WACC (%) 9.2 9.2 9.2 9.2 9.2 ROIC (%) 145.3 114.7 118.4 146.1 156.4 NOPAT (Bt m) 3,513 4,731 5,906 6,740 7,615
Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 27
12 JUNE 2013 A d H oc R SELL (Unchanged) TP: Bt 16.00 (Unchanged) e se a rch Change in Numbers Downside: -16.2%
Thanachart Securities
GMM Grammy Pcl (GRAMMY TB)
No turnaround in sight
We slash GRAMMY’s 2013-14F earnings from profits to losses as we forecast a bigger loss from GMM Z, its pay-TV subsidiary. With its huge capex cycle over the next few years to support its pay-TV subsidiary and upcoming digital TV platform, we expect GRAMMY’s financial status to KALVALEE THONGSOMAUNG be much more fragile. Reaffirm SELL with a TP of Bt16.0/share. 662 – 617 4900 [email protected] Expecting losses over 2013-14F
We don’t view GRAMMY’s losses over 4Q12-1Q13 as just being a hiccup. COMPANY VALUATION With weaker subscriber revenues and higher content costs, we see no turnaround signs for GMM Z, its pay-TV subsidiary, and expect GMM Z to Y/E Dec (Bt m) 2012A 2013F 2014F 2015F make a larger loss of Bt700m versus our previous loss estimate of Bt260m. Sales 11,435 11,218 12,629 13,757 This is together with the huge start-up costs that we anticipate from it Net profit (347) (480) (313) 593 switching to a digital TV platform. We therefore slash our earnings forecasts Consensus NP ⎯ (362) (156) 193 over 2013-16 and expect GRAMMY to post losses of Bt480m in 2013 and
Bt313m in 2014. We maintain our TP at Bt16.0/share due to the weaker- Diff frm cons (%) ⎯ 32.5 100.9 207.0 Norm profit (367) (480) (313) 593 than-expected GMM Z pay-TV business, even though we factor in additional digital TV platform income. We reaffirm our SELL rating. Prev. Norm profit ⎯ 400 580 879 Chg frm prev (%) ⎯ na na (32.6) GMM Z has performed poorly Norm EPS (Bt) (0.7) (0.9) (0.6) 1.1 Since its commercial launch in mid-February 2013, GMM Z has grossed only Norm EPS grw (%) na na na na 20,000 subscribers so far. This is far below the company’s target of 300,000 Norm PE (x) na na na 17.1 subscribers in 2013 and our projection of 80,000. In addition, the sale of set- EV/EBITDA (x) 28.9 44.1 11.8 6.2 top boxes has progressed slower than we and company had anticipated. We P/BV (x) 3.4 4.0 4.6 3.6 believe the poor performance of GMM Z has been a result of the fiercer Div yield (%) 0.0 0.0 0.0 0.0 competition in the pay-TV biz stemming from: 1) more aggressive moves by ROE (%) na na na 23.8 the premium pay-TV operator, TrueVisions, which is looking to expand its Net D/E (%) 71.1 90.3 162.0 142.1 footprint into the mass market, and 2) rising competition from the largest local
cable TV operator, Cable Thai Holdings, which is becoming more aggressive PRICE PERFORMANCE
after winning the rights to broadcast the English Premier League football. (Bt/shr) GRAMMY (%)
Deteriorating balance sheet 30 Rel to SET Index 20
We see GRAMMY’s huge capex cycle as being far from over. Aside from 27 0 rising content costs for its pay-TV business, we expect the company to spend 24 (20) Bt1.8bn to invest in digital TV, leading total capex to jump from Bt1.0bn in 21 (40) 18 (60) 2013F to Bt1.9bn in 2014F. We expect funding to mainly be via bank loans 15 (80) as the steeper loss at GMM Z has diluted the EBITDA generation of the Jun-12 Oct -12 Feb-13 Jun-13 group. Meanwhile, we don’t expect the new digital TV business to reach
breakeven until 2016. That said we project a jump in its D/E ratio from 0.93x COMPANY INFORMATION in 2012 to 1.15x in 2013 and 1.89x in 2014. Price as of 11-Jun-13 (Bt) 19.10 Better 2Q13F earnings likely not a trend Market cap (US$ m) 342.2 We see GRAMMY generating a lower loss in 2Q13 due to the outstanding Listed shares (m shares) 530.3
performance of its movie business. GRAMMY’s Thai comedy-horror movie Free float (%) 19.8
Pee Mak Prakanong posted the country’s best-ever box-office revenues of Avg daily turnover (US$ m) 0.7 Bt600m and also earned revenues of Bt400m from selling the rights to 12M price H/L (Bt) 28.0/13.1 broadcast it overseas. Since the improvement has been driven by this one Sector Media
big-hit movie, we don’t see the trend being sustained. Given rising costs and Major shareholder Paiboon Damrongchaitham 54.6% fierce competition, we expect losses from its pay-TV biz to outweigh the Sources: Bloomberg, Company data, Thanachart estimates
decent profitability of music, event, movie and media and forecast the group’s net loss to rise from Bt367m in 2012 to Bt480m in 2013.
Please see the important notice on the back page.
12 JUNE 2013 Ad Hoc Research
Ex 1: 12-month DCF-based TP Calculation Terminal (Bt m) 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F Value EBITDA 300 1,291 2,522 1,830 1,931 2,029 2,161 2,222 2,273 2,311 2,429 2,561 ⎯ Free cash flow (566) (1,067) 91 (38) 79 641 746 794 1,009 1,151 1,209 1,198 23,754
PV of free cash flow (565) (929) 74 (29) 56 424 460 457 542 577 566 523 10,377
Risk-free rate (%) 4.0 Market risk premium (%) 8.0
Beta 0.5
WACC (%) 7.1 Terminal growth (%) 2.0
Enterprise value - add investments 12,534 Net debt (2013F) 3,101 Minority interest 921
Equity value 8,512
# of shares 530 Target price/share 16.00 Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 29
12 JUNE 2013 Ad Hoc Research
COMPANY DESCRIPTION COMPANY RATING
Financial GMM Grammy Public Company Limited (GRAMMY) operates management Rating Scale diversified media and entertainment businesses. GRAMMY 5 Very Strong 5 4 runs four main businesses: music, media, movie, and other 3 Risk Strong 4 Manage 2 related entertainment. The music business involves music manage ment 1 production and copyright, digital music, show business, and 0 ment Good 3
artist management. The media business comprises free TV, Fair 2
satellite TV, radio, publishing, and event management. Its new *Corp. Liquidity Weak 1 pay-TV and home shopping businesses started up in 2012. governance None 0
Source: Thanachart Source: Thanachart; *CG Awards
THANACHART’S SWOT ANALYSIS
S — Strength W — Weakness
Well diversified revenue streams. Dependent on superstar artists.
One of the strongest music operator and media Huge investment required for GMM Z which we
content providers in Thailand. forecast to be loss-making for the next couple of years
with a deteriorating financial status.
O — Opportunity T — Threat
Higher penetration of satellite TV together with better Liberalization of the broadcasting business.
satellite TV ratings should boost its media revenue. Fierce competition in the pay-TV market.
Potential exposure to sports broadcasting. Technology and consumer preferences are shifting.
Arrival of 3G technology and music streaming to help Piracy of the company’s products. support digital music.
CONSENSUS COMPARISON RISKS TO OUR INVESTMENT CASE
Consensus Thanachart Diff
If the pay-TV business GMM Z performs better than Target price (Bt) 17.35 16.00 -8% our expectations because of a faster domestic Net profit 13F (Bt m) (362) (480) na economy or less intense competition. Net profit 14F (Bt m) (156) (313) na If the related costs for the move to digital TV are much Consensus REC BUY: 0 HOLD: 0 SELL: 6 lower than we currently expect.
HOW ARE WE DIFFERENT FROM THE STREET? If the arrival of either 3G or music streaming
technology is ahead of expectations, while music Our 2013-14 earnings forecasts factor in loss digital downloads are speeding up across the industry. contributions from its GMM Z and home shopping businesses. We incorporate digital TV value on the assumption that expenses are higher than the amount
of revenues generated over 2014-15F.
Sources: Bloomberg consensus, Thanachart estimates Source: Thanachart
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 30
12 JUNE 2013 Ad Hoc Research
FINANCIAL SUMMARY
Income Statement(consolidated) Quarterly Earnings (consolidated)
FY ending Dec (Bt m) 2011A 2012A 2013F 2014F 2015F 1Q12 2Q12 3Q12 4Q12 1Q13 Sales 9,103 11,435 11,218 12,629 13,757 Sales 2,782 3,152 2,558 2,944 2,520
Cost of sales 5,397 8,062 8,007 9,198 9,261 Cost of sales 1,696 2,241 1,637 2,489 1,755
Gross profit 3,706 3,373 3,211 3,431 4,496 Gross profit 1,086 911 921 455 766 SG&A 3,014 3,738 3,904 3,915 3,880 SG&A 822 880 955 1,081 1,008 Operating profit 692 (365) (693) (484) 617 Operating profit 264 31 (33) (626) (243) Depre & amortization 425 811 993 1,775 1,905 Depre & amortization 66 70 76 86 78
EBITDA 1,117 446 300 1,291 2,522 EBITDA 329 100 43 (540) (164) Other income 250 302 346 381 409 Other income 41 44 64 69 0 Other expenses 0 0 0 0 0 Other expenses 0 0 0 0 0 Interest expense (55) (108) (170) (249) (339) Interest expense (21) (24) (30) (33) (35) Pre-tax profit 888 (172) (516) (352) 687 Pre-tax profit 288 93 12 (565) (205)
Income tax 2962220 0137Income tax 7559434520 After-tax profit 592 (393) (516) (352) 550 After-tax profit 214 34 (30) (610) (225) Equity income 57 87 96 105 116 Equity income 27 16 28 16 12 M inority interests (59) (61) (60) (67) (73) M inority interests (98) (1) 11 27 (13) Extraordinary items 35 19 0 0 0 Extraordinary items 9 1 0 9 0
NET PROFIT 626 (347) (480) (313) 593 NET PROFIT 152 50 9 (558) (226)
Normalized profit 590 (367) (480) (313) 593 Normalized profit 143 49 9 (567) (226)
EPS (Bt) 1.2 (0.7) (0.9) (0.6) 1.1 EPS (Bt) 0.3 0.1 0.0 (1.1) (0.4) Normalized EPS (Bt) 1.1 (0.7) (0.9) (0.6) 1.1 Normalized EPS (Bt) 0.3 0.1 0.0 (1.1) (0.4)
Balance Sheet Financial Ratios And Valuations (consolidated) FY ending Dec (Bt m) 2011A 2012A 2013F 2014F 2015F 2011A 2012A 2013F 2014F 2015F
Cash & equivalent 1,016 845 850 850 850 Norm profit (y-y%) 12.8 na na na na A/C receivables 2,107 2,782 2,674 3,010 3,279 Normalized EPS (%) 12.8 na na na na Inventories 995 1,039 1,294 1,487 1,497 Net profit (y-y%) 19.5 na na na na Other current assets 1,321 1,639 1,618 1,752 1,859 EPS (%) 19.5 na na na na
Investment 1,349 1,809 1,809 1,809 1,809 Dividend payout (%) 45.8 0.0 0.0 0.0 0.0 Fixed assets 1,075 1,631 2,089 3,163 3,809 Other assets 670 1,563 1,533 2,046 2,069 Gross margin (%) 40.7 29.5 28.6 27.2 32.7 Total assets 8,534 11,309 11,867 14,118 15,172 Operating margin (%) 7.6 (3.2) (6.2) (3.8) 4.5 EBITDA margin (%) 12.3 3.9 2.7 10.2 18.3
S-T debt 1,401 3,433 3,334 5,121 5,314 Net margin (%) 6.5 (3.4) (4.6) (2.8) 4.0 A/C payables 1,992 2,260 2,852 3,276 3,298 Other current liabilities 952 986 1,020 968 973 ROA (%) 7.3 na na na 4.0 L-T debt 243 153 616 891 1,009 ROE (%) 19.3 na na na 23.8 Other liabilities 303 624 612 674 724 Net D/E (x) 0.2 0.7 0.9 1.6 1.4
Total liabilities 4,891 7,456 8,434 10,931 11,319 Norm PE (x) 17.2 na na na 17.1 M inority interest 712 862 921 988 1,062 Norm PE at TP (x) 14.4 na na na 14.3 Shareholders' equity 2,930 2,992 2,512 2,198 2,791 PE (x) 16.2 na na na 17.1
EV/EB ITDA (x) 9.6 28.9 44.1 11.8 6.2
W o r k i n g c a p i t a l 1, 110 1, 5 6 2 1, 116 1, 2 2 1 1, 4 7 8 P / B V ( x ) 3 . 5 3 . 4 4 . 0 4 . 6 3 . 6 Total debt 1,644 3,586 3,951 6,013 6,324 Dividend yield (%) 2.8 0.0 0.0 0.0 0.0 Net debt 628 2,741 3,101 5,163 5,474 Free cash flow 238 (1,278) 23 (611) 661 BV/share (Bt) 5.5 5.6 4.7 4.1 5.3
Year End Shares (m) 530 530 530 530 530 DPS (Bt) 0.5 0.0 0.0 0.0 0.0
Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 31
12 JUNE 2013 A d H oc R BUY (Unchanged) TP: Bt 28.00 (From Bt 26.00) e se a rch Change in Numbers Upside: 32.1%
Thanachart Securities
Major Cineplex Group Pcl (MAJOR TB)
Growth path firms up
We believe MAJOR has the clearest short-term share price catalyst given our expectation for strong 2Q13 profits bolstered by record-high box- office revenues. We also see a clear growth path in the longer term supported by a strong line-up of Hollywood films and aggressive KALVALEE THONGSOMAUNG expansion by going provincial. Reaffirm BUY to a new TP of Bt28.0/share 662 – 617 4900 [email protected] Clear earnings catalysts
We see earnings visibility as crystal clear for MAJOR and project strong COMPANY VALUATION earnings growth of 24% in 2013 and 18% in 2014. 2013F drivers are record- high box-office revenues and higher cross-selling revenues from its high- Y/E Dec (Bt m) 2012A 2013F 2014F 2015F margin F&B and advertising businesses. The Thai comedy-horror movie Pee Mak Prakanong posted the country’s best-ever box-office revenues of Sales 6,965 7,029 7,683 8,235 Bt600m in 2Q13. 2H13 movies are also lined up with many hit Hollywood film Net profit 811 1,006 1,190 1,355 sequels. 2014F drivers are the full-year effect of revenue recognition from Consensus NP ⎯ 1,030 1,179 1,317 Diff frm cons (%) ⎯ (2.3) 0.9 2.9 110 new screens in 2013 and our assumption for 80 new screens in 2014. Norm profit 641 1,006 1,190 1,355 Rising leverage of high-margin F&B and ad businesses Prev. Norm profit ⎯ 1,106 1,237 1,355 We don’t see MAJOR as all about ticket sales. The company uses movies as Chg frm prev (%) ⎯ (9.0) (3.8) 0.0 a magnet to draw moviegoers to cross-sell F&B while gaining eyeballs for its Norm EPS (Bt) 0.7 1.1 1.3 1.5
advertising business. With virtually no additional costs, F&B and advertising Norm EPS grw (%) (17.9) 56.9 18.3 13.9 generate high margins of over 60%. Bolstered by rising retail growth in the Norm PE (x) 29.3 18.7 15.8 13.9 provinces and MAJOR’s proactive marketing strategy, profit contributions of EV/EBITDA (x) 12.4 9.9 9.5 8.8 these two have risen from 50% in 2009 and 59% in 2012 to 63% now. On top P/BV (x) 3.0 2.9 2.8 2.7 of our projection for ticket sales to increase by 5% this year, we expect Div yield (%) 4.1 4.8 5.7 6.5 concession revenue to continue to grow by 12% and estimate healthy ad revenue growth of 14% driven by fierce competition in top-spending ROE (%) 10.5 15.8 18.1 20.0 industries such as auto, beverage and consumer products. That said we Net D/E (%) 37.1 31.9 25.8 20.6
forecast gross margin to widen from 32.3% in 2012 to 36.6% in 2013. PRICE PERFORMANCE Riding on the urbanization trend (Bt/shr) MAJOR (%) MAJOR has confirmed its plan for 110 new screens this year. Most new 25 Rel to SET Index 5 screens should be in the provinces as MAJOR’s expansion strategy tracks 23 0 (5) the expansion of hypermarkets and shopping malls. As a result, we expect 21 (10) the proportion of screens upcountry versus Bangkok to rise from 31% in 19 (15) 2012 to 46% in 2013 and 49% in 2015. To support rapid screen expansion in 17 (20) the provinces, MAJOR believes it can no longer depend on Hollywood films 15 (25) and Thai movies produced by other film makers and plans to get more J u n- 12 O c t - 12 F eb - 13 J u n - 13 involved in Thai film production via its subsidiary, which may raise its risk profile. However, we don’t expect the impact of this cyclical movie production COMPANY INFORMATION business to offset the greater benefits to the whole cinema value chain. Price as of 11-Jun-13 (Bt) 21.20
Reiterate BUY Market cap (US$ m) 635.7 Listed shares (m shares) 887.6 Although we fine-tune down our 2013-14F earnings to reflect weaker Free float (%) 45.9 bowling, film distribution and retail contributions, we lift our 12-month DCF- Avg daily turnover (US$ m) 3.3 based TP to Bt28.0 from Bt26.0 as we are more aggressive on new screens. We continue to like MAJOR as: 1) we forecast a strong 2013-15F EPS 12M price H/L (Bt) 24.9/16.7 CAGR of over 16% with an undemanding PEG valuation of 1.09x and 2) we Sector Media see it as a beneficiary of the rising urbanization trend via its aggressive Major shareholder Poolvaraluck family 39.4% expansion by going provincial. We see a short-term share price catalyst Sources: Bloomberg, Company data, Thanachart estimates
being very strong 2Q13F results pushed by record-high box-office revenues.
Please see the important notice on the back page.
12 JUNE 2013 Ad Hoc Research
Ex 1: 12-month DCF-based TP Calculation Terminal (Bt m) 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F Value
EBITDA 2,100 2,166 2,307 2,426 2,524 2,617 2,720 2,830 3,016 3,211 3,404 3,614 ⎯
Free cash flow 992 1,153 1,248 1,447 1,527 1,591 1,662 1,737 1,876 2,036 2,184 2,344 34,146 PV of free cash flow 990 970 964 1,025 993 948 909 872 863 860 846 833 12,132
Risk-free rate (%) 4.0
Market risk premium (%) 8.0 Beta 0.7 WACC (%) 9.0 Terminal growth (%) 2.0
Enterprise value - add investments 27,095 Net debt (2013F) 2,070
Minority interest 87
Equity value 24,938
# of shares 888
Target price/share 28.00
Investments (Bt m) Siam Future Development Pcl (SF TB) 2,300 Major Cineplex Lifestyle Leasehold Property Fund (MJLF TB) 1,358
Thai Ticket Major Co.,Ltd 16 Major Kantana Broadcasting Co.,Ltd 140 PVR blu-O Entertainment Limited 75 Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 33
12 JUNE 2013 Ad Hoc Research
COMPANY DESCRIPTION COMPANY RATING
Financial Major Cineplex Group Pcl (MAJOR) operates a movie theater Rating Scale management chain, bowling alleys and karaoke outlets including a bowling 5 Very Strong 5 4 business in India. The company also provides theater 3 Risk Strong 4 advertising services, rental space at standalone entertainment Manage 2 manage ment 1 complexes and distributes films. MAJOR’s strategic 0 ment Good 3 investments are in developing lifestyle neighborhood malls, a Fair 2 listed property fund, cable TV and its ticket sales business. *Corp. Liquidity governance Weak 1 None 0
Source: Thanachart Source: Thanachart; *CG Awards
THANACHART’S SWOT ANALYSIS
S — Strength W — Weakness
Its balance sheet is strong with a low D/E ratio. Earnings are still reliant on movie line-ups.
MAJOR is the leader in the cinema business with an
80% market share.
It’s a cash-cow company so it doesn’t have any problems financing new investments.
O — Opportunity T — Threat
Room for urban and provincial expansion. More piracy in the cinema business.
The 3D and 4D digital trend should reduce movie Earnings are sensitive to consumption momentum.
market piracy and lift the average ticket price (ATP).
MAJOR has set a target to boost the number of bowling lanes in India.
CONSENSUS COMPARISON RISKS TO OUR INVESTMENT CASE
Consensus Thanachart Diff
If domestic consumption momentum is disrupted more Target price (Bt) 26.00 28.00 8% than we currently expect. Net profit 13F (Bt m) 1,030 1,006 -2%
Net profit 14F (Bt m) 1,179 1,190 1% If getting more involved in the Thai film-making business via its subsidiary leads to greater volatility Consensus REC BUY: 19 HOLD: 4 SELL: 2 than we anticipate at the moment.
HOW ARE WE DIFFERENT FROM THE STREET?
Our TP is higher than the Street’s as we see a clear
long-term growth path from the urbanization trend and strong retail growth.
Sources: Bloomberg consensus, Thanachart Source: Thanachart
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 34
12 JUNE 2013 Ad Hoc Research
FINANCIAL SUMMARY
Income Statement(consolidated) Quarterly Earnings (consolidated)
FY ending Dec (Bt m) 2011A 2012A 2013F 2014F 2015F 1Q12 2Q12 3Q12 4Q12 1Q13
Sales 6,748 6,965 7,029 7,683 8,235 Sales 1,667 1,789 1,725 1,784 1,671 Cost of sales 4,428 4,717 4,454 4,891 5,190 Cost of sales 1,135 1,177 1,165 1,240 1,087 Gross profit 2,320 2,248 2,574 2,792 3,045 Gross profit 532 612 560 544 584 SG&A 1,507 1,617 1,632 1,761 1,888 SG&A 388 415 387 427 401
Operating profit 814 631 942 1,031 1,158 Operating profit 143 196 174 117 183
Depre & amortization 984 1,083 1,158 1,135 1,149 Depre & amortization 293 266 250 274 256 EBITDA 1,798 1,714 2,100 2,166 2,307 EBITDA 436 463 423 391 439 Other income 138 213 141 169 206 Other income 134 34 51 54 26 Other expenses 0 0 0 0 0 Other expenses 0 0 0 0 0
Interest expense (144) (133) (129) (114) (91) Interest expense (35) (34) (30) (34) (31)
Pre-tax profit 808 711 954 1,086 1,273 Pre-tax profit 243 197 195 137 177 Income tax 218282219217255Income tax 6268599347 After-tax profit 590 429 734 869 1,018 After-tax profit 181 129 136 45 131 Equity income 212 157 216 260 272 Equity income 58 45 49 5 45
M inority interests (21) 55 56 61 65 M inority interests (4) 9 10 39 0
Extraordinary items 9 170 0 0 0 Extraordinary items 0 35 0 135 125
NET PROFIT 791 811 1,006 1,190 1,355 NET PROFIT 235 218 195 224 301
Normalized profit 782 641 1,006 1,190 1,355 Normalized profit 235 183 195 89 176 EP S (B t) 0.9 0.9 1.1 1.3 1.5 EP S (B t) 0.3 0.2 0.2 0.3 0.3 Normalized EPS (Bt) 0.9 0.7 1.1 1.3 1.5 Normalized EPS (Bt) 0.3 0.2 0.2 0.1 0.2
Balance Sheet (consolidated) Financial Ratios And Valuations FY ending Dec (Bt m) 2011A 2012A 2013F 2014F 2015F 2011A 2012A 2013F 2014F 2015F
Cash & equivalent 461 481 550 428 200 Norm profit (y-y%) 2.6 (17.9) 56.9 18.3 13.9 A/C receivables 1,090 1,454 1,467 1,603 1,719 Normalized EPS (%) 2.6 (17.9) 56.9 18.3 13.9
Inventories 154 132 125 137 145 Net profit (y-y%) 3.8 2.6 24.0 18.3 13.9
Other current assets 288 236 288 310 379 EPS (%) 3.8 2.6 24.0 18.3 13.9 Investment 2,090 2,122 2,122 2,122 2,122 Dividend payout (%) 91.5 95.2 90.0 90.0 90.0 Fixed assets 5,181 5,332 4,974 4,639 4,290 Other assets 1,724 1,745 1,761 1,925 2,064 Gross margin (%) 34.4 32.3 36.6 36.3 37.0
Total assets 10,988 11,502 11,287 11,165 10,918 Operating margin (%) 12.1 9.1 13.4 13.4 14.1
EBITDA margin (%) 26.6 24.6 29.9 28.2 28.0 S-T debt 2,020 1,682 1,546 1,262 943 Net margin (%) 8.7 6.2 10.4 11.3 12.4 A/C payables 1,261 1,527 1,442 1,584 1,680 Other current liabilities 225 264 250 282 298 ROA (%) 7.1 5.7 8.8 10.6 12.3
L-T debt 967 1,170 1,075 877 655 ROE (%) 13.7 10.5 15.8 18.1 20.0
Other liabilities 459 474 478 523 560 Net D/E (x) 0.4 0.4 0.3 0.3 0.2 Total liabilities 4,931 5,117 4,791 4,528 4,137 Norm PE (x) 24.1 29.3 18.7 15.8 13.9 M inority interest 157 87 31 (30) (95) Norm PE at TP (x) 31.8 38.7 24.7 20.9 18.3
Shareholders' equity 5,900 6,298 6,465 6,667 6,877 PE (x) 23.8 23.2 18.7 15.8 13.9
EV/EBITDA (x) 11.9 12.4 9.9 9.5 8.8 Working capital (17) 58 149 157 184 P/BV (x) 3.2 3.0 2.9 2.8 2.7 Total debt 2,987 2,852 2,620 2,139 1,598 Dividend yield (%) 3.8 4.1 4.8 5.7 6.5 Net debt 2,526 2,371 2,070 1,711 1,398
Free cash flow 990 383 1,201 1,467 1,609 BV/share (Bt) 6.6 7.1 7.3 7.5 7.7
Year End Shares (m) 888 888 888 888 888 DPS (Bt) 0.8 0.9 1.0 1.2 1.4
Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 35
SELL (Unchanged) TP: Bt 38.50 (From Bt 28.00 ) 12 JUNE 2013
Change in Numbers Downside: -15.4%
MCOT Public Co Ltd (MCOT TB)
Victim of liberalization
We see MCOT being hit hardest by media liberalization. Although we factor in additional digital TV platform income, MCOT’s KALVALEE THONGSOMAUNG
earnings growth looks uninspiring and we don’t see any catalysts 662 – 617 4900 to unlock the share price. Reaffirm SELL with a new TP of Bt38.50. [email protected]
Hardest hit by liberalization COMPANY VALUATION We see media liberalization hitting both MCOT’s revenues and Y/E Dec (Bt m) 2012A 2013F 2014F 2015F margin. We expect the impact to the top line to be via: 1) declining adex market share given rising competition, 2) the Sales 5,683 6,323 8,285 8,553 possibility of losing its high-rating programs currently produced by Net profit 1,759 1,796 1,958 2,007 other content providers which may soon become owners of digital Consensus NP ⎯ 1,972 2,137 2,475 TV channels; and 3) foregone analog concession revenues from Diff frm cons (%) ⎯ (8.9) (8.4) (18.9) TrueVisions and BEC. As for the cost side, transforming from a Norm profit 1,759 1,796 1,958 2,007 concession owner to an operator would increase regulatory fees Prev. Norm profit ⎯ 1,740 1,781 1,854 to be paid to the NBTC from none to 4% of revenues. Chg frm prev (%) ⎯ 3.2 9.9 8.2
Transforming to digital TV network provider Norm EPS (Bt) 2.6 2.6 2.8 2.9 Norm EPS grw (%) 29.7 2.1 9.0 2.5 Aware of the potential liberalization hit, MCOT has identified two Norm PE (x) 17.8 17.4 16.0 15.6 new business ventures to make up for the losses. As MCOT is an EV/EBITDA (x) 11.6 11.9 11.0 10.6 existing infrastructure and network provider under the analog P/BV (x) 3.9 3.8 3.7 3.6 terrestrial TV system, the company has asked for approval from Div yield (%) 5.1 5.2 5.6 5.8 the NBTC to become an infrastructure and network provider under the digital TV system. However, this would require ROE (%) 22.6 22.2 23.6 23.5
additional investment of Bt5bn-6bn. MCOT would earn income Net D/E (%) (10.2) (12.2) (2.6) (1.6)
from content providers via network rental fees in return. Although this revenue stream would help offset the absence of analog PRICE PERFORMANCE concession revenues from BEC, True Visions and True Cable Thanachart Securities which are due to end from 2014-20, the rental income would be a (Bt/shr) (%) MCOT Rel to SET Index kind of fixed fee with limited growth and no upside, in our view. 60.0 80 60 50 .0 Lack of key success factors 40 40.0 The second one is to bid for three digital TV channels to 20 30.0 broadcast variety, news and children’s programs. Given MCOT’s 0 20.0 (20) lack of content competitiveness and intensifying competition in Jun-12 Oct -12 Feb-13 Jun-13
Thanachart Securities the digital TV era, we don’t see an easy ride for MCOT to succeed in this new venture. Unlike BEC or Channel 7, MCOT relies heavily on outsourced content providers. Its self-produced COMPANY INFORMATION programs comprise only 48% of the total versus 80% for BEC. In Price as of 11-Jun-13 (Bt) 45.50 addition, the majority of these are news programs which are not ratings pullers or high ad revenue generators. Its efforts to beef Market cap (US$ m) 1,056.2 up entertainment content have not been successful thus far. As a Listed shares (m shares) 687.1 consequence, we expect MCOT to face difficulties in finding the Free float (%) 22.7 right content to feed into its potential new digital TV channels. Avg daily turnover (US$ m) 1.7 Reaffirm SELL 12M price H/L (Bt) 56.8/27.0 Sector Media Admittedly, we see MCOT as cheap, trading at 2013F PE of only 17.4x. However, we expect it to stay cheap and reaffirm our SELL Major shareholder Ministry of Finance 65.8% call with a new TP of Bt38.5. 1) We see it being most affected by Sources: Bloomberg, Company data, Thanachart estimates
media liberalization. 2) It offers uninspiring growth (a 2013-15F EPS CAGR of only 5.7%) despite us factoring in additional digital TV platform income. 3) We see the 2013F dividend yield of 5.2% as a share price cushion, not a driver. We prefer media stocks with more enticing forecast earnings growth such as VGI (VGI TB, Bt130, Buy) and RS (RS TB, Bt9.85, Buy).
Please see the important notice on the back page
COMPANY NOTE MCOT KALVALEE THONGSOMAUNG
Ex 1: 12-month DCF-based TP Calculation Terminal (Bt m) 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F Value
EBITDA 2,550 2,810 2,932 3,215 3,465 3,606 3,862 3,794 3,919 4,094 4,309 4,474 —
Free cash flow 1,573 171 1,461 1,868 2,094 2,694 2,891 2,908 2,949 3,081 3,242 3,238 38,701
PV of free cash flow 1,569 140 1,082 1,251 1,269 1,477 1,434 1,305 1,197 1,131 1,077 973 11,628
Risk-free rate (%) 4.0
Market risk premium (%) 8.0
Beta 0.9
Wacc (%) 10.5
Terminal growth (%) 2.0
Enterprise value - add investments 25,533
Net debt (1,006)
Minority interest 70
Equity value 26,470
# of shares 687 Equity value/share 38.50 Sources: Company data, Thanachart estimates
Our TP is revised up from Bt28.0/share to Bt38.5/share as we adjust our earnings projections for MCOT’s existing business and factor in additional income from digital TV value. Our 2013-14F earnings are raised by 3-10% for its existing business while our terminal value is lifted on higher free cash flows over 2015-24F to reflect additional digital TV revenues.
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 37
APPENDIX MCOT KALVALEE THONGSOMAUNG
COMPANY DESCRIPTION COMPANY RATING
MCOT Public Company Limited (MCOT) was previously called the Financial Rating Scale management Mass Communication Organization of Thailand (a state enterprise) 5 Very Strong 5 and it was listed on the Stock Exchange of Thailand in 2004. MCOT 4 3 Risk Strong 4 operates various mass media businesses including free terrestrial Manage 2 manage channel broadcasting under the name “Modernine TV”, satellite and ment 1 0 ment Good 3 cable TV, offering C-band and KU-band rental, and countrywide radio stations. MCOT also has joint operation agreements with BEC World Fair 2 *Corp. Liquidity Pcl (BEC) and pay-TV operator TrueVisions. governance Weak 1
None 0
Source: Thanachart Source: Thanachart; *CG Awards
THANACHART’S SWOT ANALYSIS
S — Strength W — Weakness
MCOT has a very strong balance sheet and enjoys a net cash As 52% of its airtime comes from airtime rental and revenue position. sharing, MCOT has to share revenue with independent
MCOT has received government support including TV project producers. Therefore, we expect the company to benefit less
offerings. in the event of an industry upturn.
Content mix doesn’t match with countrywide preferences, resulting in ad rate hikes.
O — Opportunity T — Threat
Fast-growing satellite TV and cable TV could support its Liberalization should bring more competitors to the market wholesale business of C-band and KU-band rental to small and erode future profitability. satellite content providers. Satellite and cable TV’s increasing market share should offer more choices to advertisers and could pose a threat to
MCOT’s ad rate hikes, both on free TV and satellite TV going forward.
CONSENSUS COMPARISON RISKS TO OUR INVESTMENT CASE
Consensus Thanachart Diff If the cost of producing its own programs is higher than we Target price (Bt) 50.75 38.50 -24% currently estimate. Net profit 13F (Bt m) 1,972 1,796 -9% If the related costs for the move to digital TV are much higher Net profit 14F (Bt m) 2,137 1,958 -8% than we now expect.
Consensus REC BUY: 7 HOLD: 10 SELL: 3 The firm could face cost overruns because of the launch of HOW ARE WE DIFFERENT FROM THE STREET? new businesses such as self-production of satellite TV content or changing free-TV airtime allocation towards more Our 2013-14 earnings forecasts are lower than the Street’s as self-produced programs. we factor in the costs of switching to a digital TV platform as a The Thai government owns 65.8% of MCOT. We see the risk network provider and content provider. Our TP is well below of the government selling down its stake as low as: 1) this the Street’s as we see MCOT lacking content ownership level has been stable since 2006, and 2) MCOT competitiveness while competition should intensify in the offers a healthy dividend yield of 5.2-5.8% over 2013-15F. digital TV era.
Sources: Bloomberg consensus, Thanachart estimates Source: Thanachart
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 38
FINANCIAL SUMMARY MCOT KALVALEE THONGSOMAUNG
INCOME STATEMENT FY ending Dec (Bt m ) 2011A 2012A 2013F 2014F 2015F Sales 5,122 5,683 6,323 8,285 8,553 Cost of sales 2,181 2,422 2,762 4,361 4,523 Gross profit 2,941 3,260 3,560 3,925 4,030 % gross margin 57.4% 57.4% 56.3% 47.4% 47.1% Selling & administration expenses 1,074 1,186 1,541 1,771 1,828 Operating profit 1,867 2,074 2,019 2,153 2,201 % operating margin 36.5% 36.5% 31.9% 26.0% 25.7% Depreciation & amortization 541 542 531 656 730 EBITDA 2,408 2,616 2,550 2,810 2,932 % EBITDA margin 47.0% 46.0% 40.3% 33.9% 34.3% Non-operating income 191 256 253 331 342 Non-operating expenses (1) (1) (1) (1) (1) Interest expense (10) (10) (12) (19) (16) Pre-tax profit 2,047 2,319 2,258 2,465 2,527 Income tax 671 551 452 493 505 After-tax profit 1,376 1,768 1,807 1,972 2,021 % net margin 26.9% 31.1% 28.6% 23.8% 23.6% Shares in affiliates' Earnings00000 Minority interests (20) (10) (11) (14) (14) Extraordinary items 00000 NET PROFIT 1,356 1,759 1,796 1,958 2,007 Norm alized profit 1,356 1,759 1,796 1,958 2,007 EPS (Bt) 2.0 2.6 2.6 2.8 2.9 Normalized EPS (Bt) 2.0 2.6 2.6 2.8 2.9
BALANCE SHEET FY ending Dec (Bt m ) 2011A 2012A 2013F 2014F 2015F ASSETS: Current assets: 5,671 6,238 7,087 6,659 6,736 Cash & cash equivalent 1,167 826 1,500 500 500 Account receivables 615 786 866 1,135 1,172 Inventories 1140457274 Others 3,878 4,585 4,676 4,952 4,990 Investments & loans 9090909090 Net fixed assets 4,168 4,091 4,104 5,493 5,808 Other assets 723 830 923 1,210 1,249 Total assets 10,652 11,248 12,204 13,452 13,882
LIABILITIES: Current liabilities: 1,578 1,958 2,348 2,977 3,078 Account payables 87 139 151 239 248 Bank overdraft & ST loans 7 6 272 155 196 Current LT debt 00000 Others current liabilities 1,484 1,813 1,925 2,582 2,635 Total LT debt 6 5 222 127 160 Others LT liabilities 1,410 1,247 1,388 1,818 1,877 Total liabilities 2,994 3,209 3,957 4,922 5,115 Minority interest 63 59 70 84 98 Preferreds shares 00000 Paid-up capital 3,435 3,435 3,435 3,435 3,435 Share premium 1,107 1,107 1,107 1,107 1,107 Warrants 00000 Surplus 00000 Retained earnings 3,053 3,438 3,635 3,904 4,127 Shareholders' equity 7,595 7,980 8,178 8,446 8,669 Liabilities & equity 10,652 11,248 12,204 13,452 13,882
Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 39
FINANCIAL SUMMARY MCOT KALVALEE THONGSOMAUNG
CASH FLOW STATEMENT FY ending Dec (Bt m ) 2011A 2012A 2013F 2014F 2015F Earnings before tax 2,047 2,319 2,258 2,465 2,527 Tax paid (671) (551) (452) (493) (505) Depreciation & amortization 541 542 531 656 730 Chg In w orking capital 429 (148) (74) (208) (30) Chg In other CA & CL / minorities (118) 377 22 381 14 Cash flow from operations 2,228 2,540 2,286 2,801 2,735
Capex (356) (420) (500) (2,000) (1,000) ST loans & investments (633) (759) 0 0 0 LT loans & investments00000 Adj for asset revaluation00000 Chg In other assets & liabilities (121) (324) 2 100 (25) Cash flow from investm ents (1,111) (1,503) (498) (1,900) (1,025) Debt financing 13 (3) 484 (212) 74 Capital increase 00000 Dividends paid (1,458) (1,393) (1,598) (1,689) (1,784) Warrants & other surplus 15 19 0 0 0 Cash flow from financing (1,430) (1,377) (1,115) (1,901) (1,710)
Free cash flow 1,872 2,119 1,786 801 1,735
VALUATION FY ending Dec 2011A 2012A 2013F 2014F 2015F Normalized PE (x) 23.017.817.416.015.6 Normalized PE - at target price (x) 19.5 15.0 14.7 13.5 13.2 PE (x) 23.017.817.416.015.6 PE - at target price (x) 19.5 15.0 14.7 13.5 13.2 EV/EBITDA (x) 12.511.611.911.010.6 EV/EBITDA - at target price (x) 10.5 9.8 10.0 9.3 9.0 P/BV (x) 4.1 3.9 3.8 3.7 3.6 P/BV - at target price (x) 3.5 3.3 3.2 3.1 3.1 P/CFO (x) 14.012.313.711.211.4 Price/sales (x) 6.1 5.5 4.9 3.8 3.7 Dividend yield (%) 4.4 5.1 5.2 5.6 5.8 FCF Yield (%) 6.0 6.8 5.7 2.6 5.6
(Bt) Normalized EPS 2.0 2.6 2.6 2.8 2.9 EPS 2.02.62.62.82.9 DPS 2.0 2.3 2.4 2.6 2.6 BV/share 11.1 11.6 11.9 12.3 12.6 CFO/share 3.2 3.7 3.3 4.1 4.0 FCF/share 2.7 3.1 2.6 1.2 2.5
Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 40
FINANCIAL SUMMARY MCOT KALVALEE THONGSOMAUNG
FINANCIAL RATIOS FY ending Dec 2011A 2012A 2013F 2014F 2015F Grow th Rate Sales (%) (2.7) 11.0 11.3 31.0 3.2 Net profit (%) (4.7) 29.7 2.1 9.0 2.5 EPS (%) (4.7) 29.7 2.1 9.0 2.5 Normalized profit (%) (4.7) 29.7 2.1 9.0 2.5 Normalized EPS (%) (4.7) 29.7 2.1 9.0 2.5 Dividend payout ratio (%) 101.3 89.8 90.0 90.0 90.0
Operating performance Gross margin (%) 57.457.456.347.447.1 Operating margin (%) 36.5 36.5 31.9 26.0 25.7 EBITDA margin (%) 47.046.040.333.934.3 Net margin (%) 26.931.128.623.823.6 D/E (incl. minor) (x) 0.0 0.0 0.1 0.0 0.0 Net D/E (incl. minor) (x) (0.2) (0.1) (0.1) (0.0) (0.0) Interest coverage - EBIT (x) 189.0 204.6 161.8 112.1 139.3 Interest coverage - EBITDA (x) 243.7 258.1 204.4 146.3 185.6 ROA - using norm profit (%) 12.8 16.1 15.3 15.3 14.7 ROE - using norm profit (%) 17.8 22.6 22.2 23.6 23.5
DuPont ROE - using after tax profit (%) 18.0 22.7 22.4 23.7 23.6 - asset turnover (x) 0.5 0.5 0.5 0.6 0.6 - operating margin (%) 40.2 41.0 35.9 30.0 29.7 - leverage (x) 1.4 1.4 1.5 1.5 1.6 - interest burden (%) 99.5 99.6 99.5 99.2 99.4 - tax burden (%) 67.2 76.2 80.0 80.0 80.0 WACC (%) 10.510.510.510.510.5 ROIC (%) 20.224.622.524.021.4 NOPAT (Bt m) 1,255 1,581 1,615 1,723 1,761
Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 41
12 JUNE 2013 A d H oc R BUY (Unchanged) TP: Bt 14.50 (From: Bt 13.50) e se a rch Change in Numbers Upside: 47.2%
Thanachart Securities
RS Public Co Ltd (RS TB)
Best liberalization play
While RS is riding on growing satellite TV demand, we see upcoming media liberalization via its move to a new digital TV platform unlocking its ad rate potential. As we believe it has the best growth outlook in the sector while we view its valuations as undemanding, RS is one of our KALVALEE THONGSOMAUNG top sector picks along with VGI. Reaffirm BUY with a new TP of Bt14.5 662 – 617 4900 [email protected] Digital TV = ad rate upside
We expect RS to move to a digital TV platform and see it as being the best COMPANY VALUATION play among the four broadcasters under our coverage. With the must-carry rule forcing all TV platforms to broadcast digital channels, we expect an ad Y/E Dec (Bt m) 2012A 2013F 2014F 2015F rate realignment with the gap narrowing between existing free-terrestrial and Sales 2,812 3,536 4,057 4,836 satellite TV programs. We see RS as most leveraged to this story with the Net profit 281 467 654 627 largest potential upside from its highest exposure to the low-rate base Consensus NP ⎯ 438 619 654 satellite TV. We foresee a potential ad rate unlocking from the average
Bt7,000/minute currently to Bt18,000/minute in 2016 on increased Diff frm cons (%) ⎯ 6.7 5.7 (4.1) Norm profit 281 467 654 627 penetration rates. Prev. Norm profit ⎯ 465 703 654 Satellite momentum still strong Chg frm prev (%) ⎯ 0.5 (7.0) (4.1) RS’s TV ratings for its four satellite TV channels – Channel 8, Sabaidee TV, Norm EPS (Bt) 0.3 0.5 0.6 0.6 YOU Channel and StarMax – have continued to improve. Its flagship Norm EPS grw (%) 40.2 66.2 39.9 (4.1) channels, Channel 8 and Sabaidee TV, enjoyed a two-fold increase in Norm PE (x) 35.8 21.6 15.4 16.1 viewership from last year. We see this helping to draw in more EV/EBITDA (x) 22.9 12.6 11.2 8.6 advertisements and supporting further ad rate hikes. From growth of 126% in P/BV (x) 8.0 6.4 5.4 4.8 2012, we forecast satellite TV revenues to increase by 100% this year and Div yield (%) 2.5 3.2 3.9 3.7 30% in 2014, backed by: 1) ad rate hikes of 42% and 36%; and 2) utilization ROE (%) 23.3 33.1 38.1 31.6 rising from 61% in 2012 to 65% in 2013 and 66% in 2014. Net D/E (%) 8.8 1.7 31.5 25.3
Strongest growth in the sector PRICE PERFORMANCE We see clear earnings drivers lining up for RS and project it to deliver strong
2013-14F earnings growth of 66% and 40%. Key earnings drivers for 2013- (Bt/shr) (%) RS Rel to SET Index 15F are healthy growth in the satellite TV business via more satellite TV ads, 14 250 12 rising utilization, ad rate hikes and the operating leverage effect. We also 200 10 15 0 expect rising contribution from La Liga after it reaches breakeven this year. 8 10 0 We see profit generation from its core satellite business being more than 6 50 enough to cover start-up costs related to the launch of digital TV estimated at 4 2 0 Bt400m p.a. over 2014-16. In the longer term, we see digital TV emerging as Jun-12 Oct -12 Feb-13 Jun-13 its next growth driver and we project RS’s advertisement rate to be hiked by
37% in 2015 and 12% p.a. in 2016 onwards. COMPANY INFORMATION
Still in our top picks list Price as of 11-Jun-13 (Bt) 9.85 We fine-tune down our earnings forecasts over 2014-16 by 4-7% to reflect Market cap (US$ m) 296.8 incremental costs for digital TV. Since we revise up our terminal value on Listed shares (m shares) 891.8
higher free cash flows over 2016-24F to reflect stronger digital TV revenues, Free float (%) 44.8
we lift our DCF-based TP to Bt14.5. We continue to like RS and the counter Avg daily turnover (US$ m) 1.5 remains our top pick in the sector. 1) In our opinion, it is the best play on 12M price H/L (Bt) 12.9/3.6 upcoming liberalization as we see the move to digital TV unlocking RS’s ad Sector Media
rates. 2) It has the best earnings growth story where we forecast 2013-14F Major shareholder Chetchotisak Family 34% EPS growth of 66% and 40%. 3) Valuation is undemanding with 2013F PE of Sources: Bloomberg, Company data, Thanachart estimates
21.6x and a current price at a 32% discount to our new TP. 4) Dividend yield looks healthy at 3.2% in 2013F, rising to 3.9% in 2014F.
Please see the important notice on the back page.
12 JUNE 2013 Ad Hoc Research
Ex 1: 12-month DCF-based TP Calculation Terminal (Bt m) 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F Value EBITDA 803 951 1,2331,286 1,389 1,469 1,744 1,960 2,144 2,348 2,476 2,629 ⎯ Free cash flow 404 (46) 632 734 803 839 1,044 1,212 1,385 1,546 1,644 1,818 25,526
PV of free cash flow 403 (39) 485 515 515 493 562 596 624 637 620 628 8,810
Risk-free rate (%) 4.0 Market risk premium (%) 8.0
Beta 0.8
WACC (%) 9.3 Terminal growth (%) 2.0
Enterprise value - add investments 14,849 Net debt (2013F) 27 Minority interest (8)
Equity value 14,830
# of shares 1,023 Target price/share 14.50 Sources: Company data, Thanachart estimates Note: Share count is fully diluted and includes 140m units of in-the-money warrants
Ex 2: Revenue From Satellite TV Business Ex 3: Revenue Contribution In 2013F (Bt m) Satellite TV revenue (LHS) Free TV In-store (%) Contribution to total revenue (RHS) Satellite 1% media 2,500 50 1% 33% 2,000 40 Radio 1,500 30 17%
1,000 20
500 10 Music and Digital Show biz 0 0 25% 23% 2010 2011 2012 2013F 2014F 2015F
Sources: Company data, Thanachart estimates Source: Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 43
12 JUNE 2013 Ad Hoc Research
COMPANY DESCRIPTION COMPANY RATING
Financial RS Public Company Limited (RS) operates a diversified media management Rating Scale and entertainment business. The company and its subsidiaries 5 Very Strong 5 4 produce recorded music on CDs, digital music, satellite TV 3 Risk Strong 4 Manage 2 shows and dramas, radio programs, concerts and events, as manage ment 1 well as sports broadcasting programs. 0 ment Good 3
Fair 2
*Corp. Liquidity Weak 1 governance None 0
Source: Thanachart Source: Thanachart; *CG Awards
THANACHART’S SWOT ANALYSIS
S — Strength W — Weakness
Fully integrated entertainment network. Dependent on domestic consumption momentum.
Swift adjustment in response to changes in consumer Dependent on superstar artists.
needs.
Targeting customers nationwide.
O — Opportunity T — Threat
Higher penetration of satellite TV together with better Liberalization of broadcasting regulations.
satellite TV ratings should boost its media revenue. Technology and consumer preferences have shifted.
Potential exposure to sports broadcasting. Piracy of the company’s products.
Arrival of 3G technology and music streaming to help Regulatory risks from the NBTC’s broadcasting master support digital music. plan.
CONSENSUS COMPARISON RISKS TO OUR INVESTMENT CASE
Consensus Thanachart Diff
If the satellite TV business performance does not Target price (Bt) 12.50 14.50 16% reach our expectations because of sluggish domestic Net profit 13F (Bt m) 438 467 7% consumption or fierce competition. Net profit 14F (Bt m) 619 654 6%
If the related costs for the move to digital TV are much Consensus REC BUY: 4 HOLD: 2 SELL: 2
higher than we currently expect. HOW ARE WE DIFFERENT FROM THE STREET? If the arrival of 3G technology and music streaming is We assume RS moves to a digital TV platform. delayed, while music digital downloads are already
slowing down across the industry. Our TP incorporates digital TV value which we believe
would allow RS to unlock its low ad rates in the La Liga program could provide meaningful upside and
satellite TV market. Since our last update (5 March downside to our forecasts. 2013), the difference between our TP and that of the
consensus has narrowed to 16% (from 42%).
Sources: Bloomberg consensus, Thanachart Source: Thanachart
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 44
12 JUNE 2013 Ad Hoc Research
FINANCIAL SUMMARY
Incom e Statem ent(consolidated) Quarterly Earnings (consolidated)
FY ending Dec (Bt m) 2011A 2012A 2013F 2014F 2015F 1Q12 2Q12 3Q12 4Q12 1Q13
Sales 2,729 2,812 3,536 4,057 4,836 Sales 588 698 800 726 719 Cost of sales 1,853 1,825 2,174 2,600 3,073 Cost of sales 402 445 530 448 427 Gross profit 876 987 1,361 1,457 1,763 Gross profit 186 253 270 279 292 SG&A 582 635 700 807 967 SG&A 123 133 153 225 197
Operating profit 294 353 661 649 796 Operating profit 63 119 117 54 96
Depre & amortization 85 93 142 302 437 Depre & amortization 15 16 30 32 37 EBITDA 379 445 803 951 1,233 EBITDA 78 135 147 85 133 Other income 6 60 (39) 202 27 Other income 13 2 3 42 3 Other expenses (10) (9) 0 0 0 Other expenses (2) (2) (2) (2) (2)
Interest expense (3) (8) (25) (33) (42) Interest expense (0) (1) (3) (4) (5)
Pre-tax profit 287 397 598 819 781 Pre-tax profit 74 118 115 90 92 Income tax 97126143180172Income tax 1929423625 After-tax profit 190 271 454 639 609 After-tax profit 54 89 73 54 67 Equity income 00000Equity income00000
M inority interests (10) 10 13 15 18 M inority interests 2 3 3 3 1
Extraordinary items 30 0 0 0 0 Extraordinary items 0 0 0 0 0
NET PROFIT 209 281 467 654 627 NET PROFIT 56 92 76 56 68
Normalized profit 179 281 467 654 627 Normalized profit 56 92 76 56 68 EPS (Bt) 0.2 0.3 0.5 0.6 0.6 EPS (Bt) 0.1 0.1 0.1 0.1 0.1 Normalized EPS (Bt) 0.2 0.3 0.5 0.6 0.6 Normalized EPS (Bt) 0.1 0.1 0.1 0.1 0.1
Balance Sheet (consolidated) Financial Ratios And Valuations FY ending Dec (Bt m) 2011A 2012A 2013F 2014F 2015F 2011A 2012A 2013F 2014F 2015F
Cash & equivalent 286 318 360 122 100 Norm profit (y-y%) (43.4) 56.8 66.2 39.9 (4.1) A/C receivables 628 664 678 778 928 Normalized EPS (%) (48.2) 40.2 66.2 39.9 (4.1)
Inventories 37 141 55 66 77 Net profit (y-y%) (33.9) 34.3 66.2 39.9 (4.1)
Other current assets 264 398 498 572 681 EPS (%) (39.6) 20.1 66.2 39.9 (4.1) Investment 1 6 6 6 6 Dividend payout (%) 73.3 90.9 70.0 60.0 60.0 Fixed assets 112 260 468 1,166 1,079 Other assets 544 705 886 1,017 1,213 Gross margin (%) 32.1 35.1 38.5 35.9 36.5
Total assets 1,873 2,491 2,951 3,726 4,084 Operating margin (%) 10.8 12.5 18.7 16.0 16.5
EBITDA margin (%) 13.9 15.8 22.7 23.4 25.5 S-T debt 2 331 340 618 548 Net margin (%) 6.9 9.6 12.8 15.7 12.6 A/C payables 233 197 274 328 387 Other current liabilities 430 564 675 794 935 ROA (%) 10.5 12.9 17.2 19.6 16.1
L-T debt 11 98 46 84 75 ROE (%) 17.6 23.3 33.1 38.1 31.6
Other liabilities 22 43 54 62 74 Net D/E (x) (0.2) 0.1 0.0 0.3 0.3 Total liabilities 698 1,232 1,390 1,886 2,019 Norm PE (x) 50.2 35.8 21.6 15.4 16.1 M inority interest 15 5 (8) (23) (41) Norm PE at TP (x) 74.0 52.7 31.7 22.7 23.6
Shareholders' equit 1,160 1,253 1,569 1,863 2,106 PE (x) 43.0 35.8 21.6 15.4 16.1
EV/EBITDA (x) 23.0 22.9 12.6 11.2 8.6 Working capital 433 608 459 516 618 P/BV (x) 8.7 8.0 6.4 5.4 4.8 Total debt 13 428 387 702 622 Dividend yield (%) 1.5 2.5 3.2 3.9 3.7 Net debt (273) 110 27 580 522
Free cash flow 103 (68) 404 (71) 625 BV/share (Bt) 1.1 1.2 1.5 1.8 2.1
Year End Shares (m) 915 1,023 1,023 1,023 1,023 DPS (Bt) 0.2 0.3 0.3 0.4 0.4
Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 45
12 JUNE 2013 A d H oc R BUY (Unchanged) TP: Bt 165.00 (Unchanged) e se a rch Company Update Upside: 26.9%
Thanachart
Securities
VGI Global Media Pcl (VGI TB)
Creativity driving growth
Amid market worries over capacity constraints, VGI has continued to find ways to keep its high growth outlook intact. We see the change from static to digital platform trusses lifting capacity by 2.5x while we expect the plan to repackage its products to boost ad and occupancy rates. We forecast VGI’s EPS to grow 17-49% in FY14-16. Reaffirm BUY. SAKSID PHADTHANANARAK 662 – 617 4900
17-49% normalized EPS growth in the next three years [email protected]
We forecast VGI’s normalized EPS to grow by 17-49% in FY14-16 because COMPANY VALUATION of: 1) an increase in VGI’s capacity for the skytrain-related business due to the replacement of poster light boxes on platform trusses with LED screens Y/E Mar (Bt m) 2013A 2014F 2015F 2016F and additional ad space from new carriages, 2) an expected average ad rate Sales 2,838 3,810 4,889 5,533 hike by 6-11% in FY14-16 given the new tied selling strategy, and 3) an Net profit 908 1,408 1,876 2,187 expected increase in the occupancy rate to 70-78% in FY14-16. Our fully Consensus NP ⎯ 1,332 1,584 2,090 diluted 12-month DCF-based TP after the stock dividend is at Bt165.0/share.
We reaffirm our BUY call. VGI is still in our country top picks list. Diff frm cons (%) ⎯ 5.7 18.4 4.6 Norm profit 908 1,408 1,876 2,187
Benefits of stronger bargaining power Prev. Norm profit ⎯ 1,408 1,876 2,187 We now see VGI’s stronger bargaining power given its domination of the out- Chg frm prev (%) ⎯ 0.0 0.0 0.0 of-home market allowing it to gain many benefits. 1) Its huge revenue sharing Norm EPS (Bt) 2.9 4.3 5.7 6.6 with modern trade retailers should allow it to extend the license agreements Norm EPS grw (%) 209.0 49.4 33.3 16.6 scheduled to expire over 2013-16, at the same, if not lower, revenue-sharing Norm PE (x) 45.5 30.5 22.9 19.6 rate of 50%. 2) Its broad customer base has enticed other media owners EV/EBITDA (x) 32.0 22.3 16.5 14.0 such as the Airport Rail Link and outdoor mega LEDs to ask the company to P/BV (x) 24.1 19.5 16.0 13.7 manage their ad space. 3) Given its various media, VGI is implementing a Div yield (%) 1.8 2.8 3.7 4.3 tied selling strategy to improve overall ad and utilization rates. 4) We believe ROE (%) 89.2 70.8 76.9 75.2 VGI’s high economies of scale should allow it to compete with rivals in Net D/E (%) (69.1) (83.9) (87.2) (95.9) bidding for ad space management, especially on the new skytrain lines, and
we leave this additional ad space as upside. PRICE PERFORMANCE
Cash cow business may offer acquisition opportunities (Bt/shr) (%) VGI Rel to SET Index VGI’s business is cash-generative as it requires very low working capital. 17 0 200 15 0 VGI, as a service company, doesn’t have inventory while it can make money 150 13 0 selling ad space faster than it pays license fees to ad space owners. This 110 10 0 allows VGI to maintain a net cash position. Given significant cash on hand of 90 50 Bt1.3bn as of end 4QFY13 and forecast EBITDA of Bt1.8bn this year and 70 50 0 Bt2.5bn next, VGI’s management is also looking for opportunities in overseas O c t - 12 D e c - 12 M a r - 13 J u n - 13 media businesses. The plan is to do a joint venture with or acquire media
companies in Asia. However, no conclusions have been reached so far. COMPANY INFORMATION Without any acquisitions, we forecast VGI to pay a dividend with an 85% Price as of 11-Jun-13 (Bt) 130.00 payout ratio while we estimate dividend yields at 2.8-4.3% in FY14-16. Market cap (US$ m) 1,317.6 27% upside to our TP Listed shares (m shares) 300.0
Despite the substantial rise in its share price by 136% since the first day of Free float (%) 28.9
trading on 11 October 2012, we believe VGI’s share price is still at an Avg daily turnover (US$ m) 3.2 undemanding level given its stronger segment and earnings growth outlook, 12M price H/L (Bt) 148.5/31.8 lower regulatory risk, and what we view as safer and more stable income Sector Media
streams. We forecast a FY14-16F EPS CAGR of 24.6% and an Major shareholder BTSC 65.7% undemanding PEG valuation at 1.3x compared with the sector average of Sources: Bloomberg, Company data, Thanachart estimates
1.6x.
Please see the important notice on the back page.
12 JUNE 2013 Ad Hoc Research
Ex 1: 12-month DCF-based TP Calculation Terminal (Bt m) 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F Value EBITDA 1,842 2,453 2,854 3,262 3,572 3,946 4,377 4,851 5,373 5,719 6,286 ⎯ Free cash flow 1,287 1,693 2,158 2,407 2,715 2,986 3,323 3,702 4,119 4,484 4,869 5,358
PV of free cash flow 1,283 1,410 1,639 1,668 1,717 1,723 1,749 1,778 1,805 1,792 1,775 1,782
Risk-free rate (%) 4.0 Market risk premium (%) 8.0
Beta 0.7
WACC (%) 9.6 Terminal growth (%) 2.0
Enterprise value - add investments 52,498 Net debt (FY14F) (1,874) Minority interest 36
Equity value 54,336
# of shares (m) 330 Target price/share 165 Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 47
12 JUNE 2013 Ad Hoc Research
COMPANY DESCRIPTION COMPANY RATING
Financial VGI Global Media Pcl. (VGI) is a part of BTS Group Holdings Rating Scale management Pcl (BTS). It is Thailand’s largest out-of-home media company, 5 Very Strong 5 4 responsible for managing the ad space on BTS’s skytrain 3 Risk Strong 4 network, including stations and trains. It has also secured Manage 2 manage ment 1 exclusive contracts with modern trade retailers representing 0 ment Good 3 91.4% of Thailand's market share to manage ad space Fair 2 nationwide. In return, VGI pays licenses fees of 5% of its BTS- *Corp. Liquidity related revenues to BTS Group with an incremental increase governance Weak 1
of 5% every five years until it reaches 20%. None 0
Source: Thanachart Source: Thanachart; *CG Awards, no rating
THANACHART’S SWOT ANALYSIS
S — Strength W — Weakness
Very low-risk business model as most of its income is Given that the majority of its business relies on its from running the media business for its parent BTS. parent BTS, there’s naturally a risk of transparency.
Dominating BTS’s ad space, VGI has large economies The BTS Skytrain is exposed to the risk of political
of scale which makes it highly competitive versus other unrest that could result in the halting of skytrain
out-of-home media types. services and thus have an indirect impact on VGI’s
Its cash-generative business allows VGI to maintain a media business.
net cash position.
O — Opportunity T — Threat
Demand for ad space in the out-of-home media sector Potential strong adex growth in out-of-home media
is growing strongly as people in Bangkok are spending could draw more competitors into the market, thereby
more and more time away from their homes. eroding VGI’s future profitability.
Expansions of the skytrain network and modern trade Economic slowdown could pose a threat to VGI’s ad
retailers offer VGI future growth opportunities. rate hikes going forward.
Strong financial status offers VGI opportunities for
acquisitions and overseas expansion.
CONSENSUS COMPARISON RISKS TO OUR INVESTMENT CASE
Consensus Thanachart Diff
Political unrest could affect the BTS Skytrain services Target price (Bt) 131.82 165.00 25% and thus media income from managing ad space. Net profit 14F (Bt m) 1,332 1,408 6% We assume VGI should be able to renew its exclusive Net profit 15F (Bt m) 1,584 1,876 18% contracts with modern trade retailers when the
Consensus REC BUY: 6 HOLD: 2 SELL: 3 contracts expire over the next one to four years. Failure to renew the contracts would hit its bottom line. HOW ARE WE DIFFERENT FROM THE STREET? Advertising expenditure is dependent on the economic Our earnings forecasts for 2013-14 are 6-18% higher situation. A slowdown in the economy could have an than the Street’s because of our more aggressive impact on VGI’s occupancy rate and ad space hikes. sales growth and gross margin assumptions.
Our TP is 25% above consensus given our more
aggressive long-term earnings outlook.
Sources: Bloomberg consensus, Thanachart Source: Thanachart
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 48
12 JUNE 2013 Ad Hoc Research
FINANCIAL SUMMARY
Income Statement(consolidated) Quarterly Earnings (consolidated)
FY ending M ar (Bt m) 2012A 2013A 2014F 2015F 2016F 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Sales 1,977 2,838 3,810 4,889 5,533 Sales 473 650 735 761 691 Cost of sales 1,295 1,289 1,616 2,013 2,229 Cost of sales 341 346 310 322 311
Gross profit 682 1,548 2,193 2,877 3,304 Gross profit 132 305 424 439 380 SG&A 270 390 495 611 664 SG&A 65 95 94 105 97 Operating profit 412 1,158 1,698 2,265 2,640 Operating profit 67 210 331 334 283 Depre & amortization 95 95 144 188 214 Depre & amortization 24 24 25 27 19 EBITDA 507 1,253 1,842 2,453 2,854 EBITDA 90 234 356 361 303
Other income 27 34 61 80 93 Other income 6 3 3 14 14 Other expenses (12) (3) 0 0 0 Other expenses (11) (0) 0 (0) (3) Interest expense (1) (2) (0) (0) (0) Interest expense (0) (0) (0) (2) (0) Pre-tax profit 427 1,187 1,760 2,345 2,734 Pre-tax profit 62 213 334 346 294 Income tax 148 279 352 469 547 Income tax 27 53 81 75 70
After-tax profit 278 908 1,408 1,876 2,187 After-tax profit 35 160 253 271 224 Equity income 00000Equity income00000 Minority interests00000Minority interests00000 Extraordinary items00000Extraordinary items00000
NET PROFIT 278 908 1,408 1,876 2,187 NET PROFIT 35 160 253 271 224 Normalized profit 278 908 1,408 1,876 2,187 Normalized profit 35 160 253 271 224 EPS (Bt) 0.9 2.9 4.3 5.7 6.6 EPS (Bt) 0.3 0.5 0.8 0.9 0.7
Normalized EPS (Bt) 0.9 2.9 4.3 5.7 6.6 Normalized EPS (Bt) 0.3 0.5 0.8 0.9 0.7
Balance Sheet (consolidated) Financial Ratios And Valuations
FY ending M ar (Bt m) 2012A 2013A 2014F 2015F 2016F 2012A 2013A 2014F 2015F 2016F
Cash & equivalent 381 1,254 1,874 2,366 3,044 Norm profit (y-y%) 61.5 226.1 55.0 33.3 16.6
A/C receivables 484 673 835 1,005 1,061 Normalized EPS (%) 61.5 209.0 49.4 33.3 16.6 Inventories 0 0 0 0 0 Net profit (y-y%) 61.5 226.1 55.0 33.3 16.6 Other current assets 95 68 100 100 100 EPS (%) 61.5 209.0 49.4 33.3 16.6
Investment 0 0 0 0 0 Dividend payout (%) 118.1 85.9 85.0 85.0 85.0
Fixed assets 228 473 870 982 968 Other assets 126 104 140 180 204 Gross margin (%) 34.5 54.6 57.6 58.8 59.7 Total assets 1,314 2,573 3,819 4,633 5,377 Operating margin (%) 20.8 40.8 44.6 46.3 47.7 EBITDA margin (%) 25.6 44.2 48.3 50.2 51.6
S-T debt 0 0 0 0 0 Net margin (%) 14.1 32.0 37.0 38.4 39.5
A/C payables 469 178 664 827 916 Other current liabilities 536 559 892 1,054 1,244 ROA (%) 21.3 46.7 44.0 44.4 43.7 L-T debt 0 0 0 0 0 ROE (%) 87.5 89.2 70.8 76.9 75.2 Other liabilities 16 22 29 37 42 Net D/E (x) (1.3) (0.7) (0.8) (0.9) (1.0) Total liabilities 1,021 758 1,585 1,918 2,202
Norm PE (x) 140.7 45.5 30.5 22.9 19.6 M inority interest 36 36 36 36 36 Norm PE at TP (x) 178.6 57.8 38.7 29.0 24.9 Shareholders' equity 258 1,779 2,198 2,679 3,139 PE (x) 140.7 45.5 30.5 22.9 19.6 EV/EBITDA (x) 76.6 32.0 22.3 16.5 14.0
Wo rking capital 16 496 171 177 145 P /B V (x) 152.1 24.1 19.5 16.0 13.7
Total debt 0 0 0 0 0 Dividend yield (%) 0.8 1.8 2.8 3.7 4.3 Net debt (381) (1,254) (1,874) (2,366) (3,044) Free cash flow 309 234 1,637 1,919 2,423 BV/share (Bt) 0.9 5.4 6.7 8.1 9.5 Year End Shares (m) 301 318 330 330 330 DPS (Bt) 1.1 2.4 3.6 4.8 5.6
Sources: Company data, Thanachart estimates
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DISCLAIMER KALVALEE THONGSOMAUNG
Disclaimers: This publication is prepared by Thanachart Securities Public Company Limited and distributed outside Thailand by Daiwa Securities Group Inc. and/or its non-U.S. affiliates except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Thanachart Securities Public Company Limited (“Thanachart Securities”), Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Thanachart Securities, Daiwa Securities Group Inc. and/or their respective affiliates nor any of their respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person.
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DISCLAIMER KALVALEE THONGSOMAUNG
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This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 23
DISCLAIMER KALVALEE THONGSOMAUNG
affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.
Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory . Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action .
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Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.
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For stocks in Thailand covered by Thanachart Securities, the following rating system is in effect: Ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the rating is BUY. If the downside is 10% or more, the rating is SELL. For stocks where the upside or downside is less than 10%, the rating is HOLD. Unless otherwise specified, these ratings are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating.
For the sector, Thanachart looks at two areas, ie, the sector outlook and the sector weighting. For the sector outlook, an arrow pointing up, or the word “Positive”, is used when Thanachart sees the industry trend improving. An arrow pointing down, or the word “Negative”, is used when Thanachart sees the industry trend deteriorating. A double-tipped horizontal arrow, or the word “Unchanged”, is used when the industry trend does not look as if it will alter. The industry trend view is Thanachart’s top-down perspective on the industry rather than a bottom-up interpretation from the stocks that Thanachart covers. An “Overweight” sector weighting is used when Thanachart has BUYs on majority of the stocks under its coverage by market cap. “Underweight” is used when Thanachart has SELLs on majority of the stocks it covers by market cap. “Neutral” is used when there are relatively equal weightings of BUYs and SELLs].
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Relevant Relationships (TNS) TNS may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.
TNS market making TNS may from time to time make a market in securities covered by this research.
Additional information may be available upon request.
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 24
DISCLAIMER KALVALEE THONGSOMAUNG
Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)
If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. In some cases, we may also charge a maximum of ¥2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.
When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.
Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Thanachart Securities Pcl. Research Team 28 Floor, Siam Tower Unit A1 989 Rama 1, Pathumwan Road, Bangkok 10330, Thailand Tel: 662 - 617 4900 Email: [email protected]
Pimpaka Nichgaroon, CFA Supanna Suwankird Siriporn Arunothai Head of Research Energy, Utilities Ad Hoc Research, Healthcare Economics & Strategy [email protected] [email protected] [email protected]
Sarachada Sornsong Saksid Phadthananarak Noppadol Pririyawut Banks, Telecom Construction, Electronics, Transportation Senior Technical Analyst [email protected] [email protected] [email protected]
Phannarai Tiyapittayarut Kalvalee Thongsomaung Adisak Phupiphathirungul, CFA Property, Retail Food, Hotel, Media Retail Market Strategy [email protected] [email protected] [email protected]
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