VGI Global Media
VGI Global Media Underperform (TP Bt5.60)
Company Update
Close Bt4.64
Media & Publishing April 24, 2015
Earnings upgrade/Earnings downgrade/Overview unchanged
Negatives priced in, but no near‐term catalysts
FY15
FY16
Consensus EPS (Bt)
0.165
0.182
KT ZMICO vs. consensus Share data
51.5%
‐12.1%
Reuters / Bloomberg
VGI.BK/VGI TB
Paid‐up Shares (m)
6,864.32
Par (Bt)
0.10
Market cap (Bt bn / US$ m) Foreign limit / actual (%)
32.00/982.00 49.00/7.44
52 week High / Low (Bt)
7.30/4.48
Avg. daily T/O (shares 000)
16,007.00
NVDR (%)
2.54
Estimated free float (%)
36.4
Beta
0.93
URL
www.vgi.co.th ‐
CGR
Raenoo Bhandasukdi Analyst no. 17989 [email protected] 66 (0) 2695‐5836
Maintain “Underperform” rating; lower TP to Bt5.60/share We lower the SOTP‐based target price for VGI by 7% to Bt5.6/share, vs. Bt6.0/share previously, after the earnings revision regarding the contract termination with BIGC. Although VGI’s current price is significantly lower than our new TP, we maintain our “Underperform” rating as we expect the negative catalysts from both its own operation and a weak ad spending industry to continue to pressure VGI’s share price over the next six months. VGI to end Modern Trade advertising management business VGI decided to terminate its advertising management contract with BIGC after the latter could not prevent pirate advertising on VGI’s advertising space as specified in the contract. This will end the advertising management contracts in Modern Trade for VGI and it will now focus only on BTS‐related media, office buildings and other outdoor media. VGI is still looking to expand its business, both domestically and internationally, when opportunities arise. Revise down earnings in FY15‐16E by 17% and 11% We lower VGI’s earnings estimates in FY15‐16E by 17% and 11% to Bt872mn and Bt1,119mn, respectively, owing to both a weaker‐than‐ expected advertising industry and the loss of the BIGC contract. Expect net profit of Bt49mn in 4QFY15E We expect VGI to report net profit of Bt49mn in 4QFY15E (Jan‐Mar 15), falling by 75% YoY and 84% QoQ, owing mainly to extra expenses of Bt172mn related to the contract termination. Stripping out this extra item, VGI is likely to report normalized profit of Bt221mn, increasing by 15% YoY owing to the low base, but declining by 11% QoQ as a result of both the impact of the lost revenue from Tesco and the revenue slowdown from BTS‐related media due to the seasonal pattern. Financial and Valuation (Before XD) FY Ended 31 Mar FY13 Revenues (Btmn) 2,838 Net profit (Btmn) 902 EPS (Bt) 0.30 Norm. profit (Btmn) 902 Norm. profit growth (%) 224.02 Norm. EPS (Bt) 0.30 Dividend (Bt) 0.27 BV (Bt) 0.61 FY Ended 31 Mar FY13 PER (x) 15.44 EV/EBITDA (x) 10.13 P/BV (x) 7.64 Dividend yield (%) 5.82 ROE (%) 85.30 Net gearing (%) cash
FY14 3,149 1,146 0.33 1,146 27.08 0.33 0.32 0.57 FY14 13.90 9.20 8.15 6.90 60.71 cash
FY15E 2,978 991 0.25 872 (13.54) 0.20 0.20 0.33 FY15E 20.09 10.21 13.90 4.33 41.08 cash
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 7
FY16E 2,460 1,119 0.16 1,119 13.00 0.16 0.15 0.36 FY16E 28.45 9.06 13.02 3.16 46.97 cash
FY17E 2,643 1,228 0.18 1,228 9.71 0.18 0.16 0.39 FY17E 25.94 8.18 11.83 3.47 47.27 cash
VGI to end Modern Trade advertising management business VGI decided to terminate its advertising management contract with BIGC after the latter could not prevent pirate advertising on VGI’s advertising space as specified in the contract. According to VGI, this is likely to become effective by the end of this month, as VGI already notified BIGC on 16 April 2015. VGI will realize extra expenses related to the termination totaling Bt215mn, or Bt172mn after tax, in 4QFY15 (Jan – Mar 15). These expenses will mainly be related to asset write‐offs and employee payments. This will end the advertising management contracts in Modern Trade for VGI as the contract with Tesco already ended in February. VGI is likely to end its advertising management contract with Family Mart as well due to the small size of the business. Hence, for now VGI will focus on advertising management for BTS‐related media and office buildings, along with other media spaces, such as LED screens in outdoor areas, Chulalongkorn University’s bus advertising management, and Chamjuree Square advertising management, for which the company recently obtained a contract. VGI is still looking to expand its business, both domestically and internationally, when opportunities arise. Figure 1: VGI’s existing media management after halting its operation in Modern Trade stores BTS‐related media Office buildings & others
Source: VGI REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 7
Revise down earnings in FY15‐16E by 17% and 11% In regard to the contract termination and the related expenses as mentioned above, we now lower VGI’s earnings estimates in FY15‐16E by 17% and 11% to Bt872mn and Bt1,119mn, respectively. For FY15E (Apr 14 – Mar 15), we lower VGI’s revenue by 3% to Bt2,978mn, mainly owing to the decline of advertising revenue related to Modern Trade. This is due to the slower‐ than‐expected turnaround of the advertising industry, especially for Modern Trade, which is likely to be negatively affected by the weakening of private consumption. Meanwhile, we cut VGI’s revenue in FY16E (Apr 15 – Mar 16) by 30% to Bt2,460mn owing to the absence of revenue from Modern Trade. However, its gross profit margin (GPM) in FY16E is likely to improve to 73%, vs. 57% previously expected, as the GPM for Modern Trade revenue is significantly lower than the GPM from BTS‐related revenue. Figure 2: Key changes to our assumptions and revision to earnings forecasts FY15E New Advertising revenue (Btmn) % YoY BTS-related Modern Trade Office building & Others Gross profit margin (%) Net profit (Btmn)
Previous
FY16E % +/-
Previous
2,460
3,531
(17.4)
14.7
% +/(30.3)
2,978
3,079
(5.4)
(2.2)
1,818
1,761
3.2
2,067
2,034
1.6
979
1,099
(10.9)
0
1,245
(100.0)
(17.4)
55.9
181
219
54.5
55.2
872
1,047
(3.3)
New
(16.7)
393
252
72.9
57.3
1,119
1,260
(11.2)
Source: KT ZMICO Research
Expect net profit of Bt49mn in 4QFY15E We expect VGI to report net profit of Bt49mn in 4QFY15E (Jan‐Mar 15), falling by 75% YoY and 84% QoQ, owing mainly to extra expenses of Bt172mn related to the BIGC contract termination. Stripping out this extra item, VGI is likely to report normalized profit of Bt221mn, increasing by 15% YoY but declining by 11% QoQ. On a year‐on‐year basis, earnings are expected to improve owing to the rebound of the revenue of BTS‐related media along with GPM improvement. However, on a quarter‐to‐quarter basis, revenue is likely to decline significantly owing to both the impact of the lost revenue from Tesco and the revenue slowdown from BTS‐related media due to the seasonal pattern. According to Nielsen, the advertising industry (excluding cable and digital TV) shrank by 4% YoY and 13% QoQ in 1Q15, particularly in‐store, magazines, and terrestrial TV. Figure 3: Total ad spending growth in 1Q15 (% YoY) Figure 4: Ad spending for transit and in‐store media Btmn
450
Industry
-4.1%
Internet
29.5% -13.6% 14.3%
Outdoor
200
Cinema
12.8%
150
-15.3%
100
Newsprint
50
-1.8%
Radio
-25%
250
-0.1%
0
0.2% -6.4%
TV -15%
350 300
Transit
Magazine
In-store
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15
In Store
Transit
400
-5%
5%
15%
25%
35%
Source: Nielsen. Note: excluding ad spending via cable & digital TV for purposes of comparison REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 7
Figure 5: 4QFY15E earnings preview Profit and Loss (Btmn) Year‐end 31 Mar Revenue Gross profit SG&A EBITDA Interest expense Other income Income tax Other extra items Gn (Ls) from affiliates Net profit (loss) Normalized profit (loss) Reported EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%) Current ratio (x) Interest coverage (x) Debt/equity (x) BVPS (Bt) ROE (%) Revenue structure BTS‐related Modern Trade Office building & others
4QFY14 641 326 (112) 239 (0) 16 (37) ‐ (1) 193 193 0.056
3QFY15 789 422 (119) 346 (2) 15 (73) 53 4 301 248 0.088
4QFY15E 632 347 (89) 302 (4) 10 (48) (172) 5 49 221 0.007
% YoY (1.5) 6.6 (20.4) 26.0 n.m. (38.9) 31.7 n.m. n.m. (74.5) 14.7 (87.2)
% QoQ (20.0) (17.7) (25.1) (12.9) 114.9 (31.7) (33.7) (423.5) 6.9 (83.6) (10.7) (91.8)
FY14 3,149 1,807 (434) 1,459 (1) 47 (273) ‐ (1) 1,146 1,146 0.351
FY15E 2,978 1,624 (441) 1,339 (10) 49 (248) (119) 15 872 991 0.247
50.8 37.3 30.1 2.1 cash 0.0 0.6 41.5
53.5 43.9 31.4 1.3 174.3 0.1 0.7 45.5 494 247 48
55.0 47.8 35.0
57.4 46.3 36.4 2.1 cash 0.0 0.6 60.7
442 141 49
12.6 (36.0) 69.9
(10.4) (43.1) 0.6
1,679 1,295 175
54.5 45.0 29.3 1.1 118.3 0.1 0.3 46.8 1,818 979 181
393 220 29
% YoY (5.4) (10.1) 1.7 (8.2) n.m. 6.0 (9.3) n.m. n.m. (23.9) (13.5) (29.6) 8.3 (24.4) 3.3
Source: VGI, KT ZMICO Research Maintain “Underperform” rating; lower TP to Bt5.60/share After the earnings revision, we lower the SOTP‐based target price for VGI by 7% to Bt5.6/share, vs. Bt6.0/share previously. The valuation for VGI’s existing business is still based on DCF with a WACC assumption of 11%, with the value of the 24.89%‐owned MACO included based on consensus target price. VGI’s TP at Bt5.60 implies PER of 33x, close to the ‐0.5SD level of the historical average PER, which we believe suitably reflects the negative impact of the BIGC contract termination. Meanwhile, the implied PER of 33x is also in line with the average PER of PLANB and MACO, which operate out‐of‐home media just as VGI does. Although VGI’s current price is significantly lower than our new TP, we maintain our “Underperform” rating as we expect the negative catalysts from both its own operation and the weak ad spending industry to continue to pressure VGI’s share price over the next six months. Figure 6: Summary of SOTP‐based valuation for VGI Business
%
Valuation Method
Holding VGI’s existing business MACO SOTP‐based
24.89
Value to VGI (Bt)*
DCF (WACC 11%)
5.40
Consensus target price of Bt1.69
0.20 5.60
Source: KT ZMICO Research, Note: *not including shares reserved for VGI‐W1 REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 7
Figure 7: VGI’s PER band and sensitivity of market prices based on PER at difference standard deviation levels (X) 60 50
FY16E +1.0SD +0.5SD Average ‐0.5SD ‐1.0SD ‐1.5SD ‐2.0SD ‐2.5SD
+2 S.D. +1 S.D. Avg.
40 30
-1 S.D.
20
-2 S.D.
Apr-15
Jan-15
Mar-15
Dec-14
Oct-14
Nov-14
Jul-14
Aug-14
Jun-14
Mar-14
May-14
Jan-14
Feb-14
Oct-13
Dec-13
Sep-13
Jul-13
Aug-13
Apr-13
May-13
Mar-13
Feb-13
Dec-12
Oct-12
0
Nov-12
10
PER (x) 46.5 42.3 38.0 33.8 29.5 25.3 21.0 16.8
Implied market price (Bt) 7.44 6.76 6.08 5.40 4.72 4.04 3.36 2.68
Upside/Downside vs. current market price (%) 55.0 40.8 26.7 12.5 (1.7) (15.8) (30.0) (44.2)
Source: Bloomberg, KT ZMICO Research Figure 8: Peer comparison 15‐16E
PER (x)
PBV (x)
Yield (%)
ROE (%)
BEC WORLD PUBLIC CO LTD GMM GRAMMY PCL
‐43.3
n.a.
n.a.
n.a.
3.3
3.9
5.2
0.0
0.0
n.a.
‐74.8
‐24.8
‐13.9
76.2
49.3
12.2
17.1
22.7
23.1
20.2
3.9
4.6
4.4
3.8
3.7
4.2
17.5
20.3
22.7
11.9
13.0
11.2 4.6
MAJOR CINEPLEX GROUP PCL MCOT PCL RS PCL WORKPOINT ENTERTAINMENT PCL
14E 15E 16E 14E 15E 16E 14E 15E 16E 23.1 17.9 16.6 11.8 9.1 8.6 2.0 5.1 5.6
EV/EBITDA (x)
CAGR 6.1
14E 50.5
15E 52.3
16E 14E 15E 16E 53.5 12.0 9.6 9.0
8.9
22.1
18.0
17.1
1.5
1.3
1.3
3.4
4.4
4.5
6.6
7.5
7.6
6.4
5.0
55.7
44.6
27.5
18.2
9.3
8.2
7.0
1.8
3.0
4.3
22.5
33.9
42.9
11.2
12.5
8.3
252.1
525.0
63.0
48.4
6.6
5.6
5.3
0.1
0.8
1.4
1.3
11.2
11.8
31.9
25.6
21.1
MASTER AD PCL
22.5
36.0
22.0
22.0
6.6
0.2
0.2
2.7
2.3
3.0
19.8
21.3
20.4
28.5
14.5
12.8
PLAN B MEDIA PCL
32.3
n.a.
43.5
35.7
23.1
6.4
5.8
n.a.
2.0
2.0
n.a.
19.6
16.6
n.a.
24.1
19.1
Average (simple)
43.9
112.2
30.7
25.5
8.3
4.9
4.7
2.0
2.7
3.6
6.2
17.7
20.2
25.5
19.2
12.3
27.4
36.0
32.7
28.9
14.8
3.3
3.0
2.7
2.1
2.5
19.8
20.5
18.5
28.5
19.3
16.0
PLANB & MACO average (simple)
Source: Bloomberg, Note: *KT ZMICO Research estimates
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 7
Financial tables PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Equity earnings Other income / exp. EBT Corporate tax Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btm) Cash and equivalents Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Minority interests Shareholder equity Total liab. & shareholder equity CASH FLOW (Btm) Net income Depreciation & amortization Change in working capital FX, non‐cash adjustment & others Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) Core EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%) FINANCIAL QUALITY Total debt to capital employed (x) Net debt to equity (x) Interest coverage (x)
FY12 1,977 (1,295) 682 (282) 495 (95) 400 (1) 0 27 427 (148) (0) 278 0.28 0.28 278 0.28 0.40
FY13 2,838 (1,289) 1,548 (394) 1,250 (95) 1,155 (2) 0 34 1,187 (285) 0 902 0.30 0.30 902 0.30 0.27
FY14 3,149 (1,342) 1,807 (434) 1,459 (86) 1,374 (1) (1) 47 1,419 (273) 0 1,146 0.33 0.33 1,146 0.33 0.32
FY15E 2,978 (1,354) 1,624 (441) 1,339 (156) 1,183 (10) 15 (69) 1,119 (248) 0 872 0.25 0.13 991 0.23 0.20
FY12 381 0 228 705 1,314 0 0 1,021 0 293 1,314
FY13 1,254 0 473 852 2,579 0 0 758 0 1,821 2,579
FY14 503 0 923 1,315 2,741 0 0 788 0 1,953 2,741
FY15E 464 0 1,340 1,492 3,296 200 0 1,005 0 2,291 3,296
FY12 278 95 (47) 16 343 (69) 11 (59) (1) 0 (400) 0 (401) (117) 284 0.28
FY13 902 95 (437) 0 560 (321) 17 (304) 0 1,058 (440) 0 618 873 255 0.09
FY14 1,146 86 124 0 1,356 (570) (508) (1,078) 0 0 (1,014) 0 (1,014) (736) 277 0.08
FY15E 872 156 9 0 1,036 (600) (156) (756) 200 343 (878) 0 (334) (54) 281 0.04
FY12 41.1 47.0 60.7 34.5 25.0 20.2 14.1 14.1 34.7
FY13 43.5 152.6 224.0 54.6 44.0 40.7 31.8 31.8 24.0
FY14 11.0 16.7 27.1 57.4 46.3 43.6 36.4 36.4 19.2
FY15E (5.4) (8.2) (13.5) 54.5 45.0 39.7 29.3 33.3 22.1
FY12 0.00 cash cash
FY13 0.00 cash cash
FY14 0.00 cash cash
FY15E 0.08 cash cash
FY16E 2,460 (666) 1,794 (443) 1,526 (175) 1,351 (10) 17 41 1,399 (280) 0 1,119 0.16 0.16 1,119 0.16 0.15
FY17E 2,643 (696) 1,947 (476) 1,657 (186) 1,471 0 20 44 1,535 (307) 0 1,228 0.18 0.18 1,228 0.18 0.16
FY16E 123 0 1,433 1,382 2,938 0 0 464 0 2,475 2,939
FY17E 396 0 1,397 1,421 3,214 0 0 479 0 2,721 3,199
FY16E 1,119 175 (232) 0 1,062 (268) 0 (268) (200) 0 (935) 0 (1,135) (341) 794 0.12
FY17E 1,228 186 114 0 1,529 (150) 0 (150) 0 0 (1,105) 0 (1,105) 273 1,379 0.20
FY16E (17.4) 14.0 13.0 72.9 62.0 54.9 45.5 45.5 20.0
FY17E 7.4 8.6 9.7 73.6 62.7 55.6 46.5 46.5 20.0
FY16E 0.00 cash cash
FY17E 0.00 cash cash
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 7
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market return over six months period because of specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to below market return over six months period because of specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 7 of 7
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
Company Update
Close Bt4.64
Media & Publishing April 24, 2015
Earnings upgrade/Earnings downgrade/Overview unchanged
Negatives priced in, but no near‐term catalysts
FY15
FY16
Consensus EPS (Bt)
0.165
0.182
KT ZMICO vs. consensus Share data
51.5%
‐12.1%
Reuters / Bloomberg
VGI.BK/VGI TB
Paid‐up Shares (m)
6,864.32
Par (Bt)
0.10
Market cap (Bt bn / US$ m) Foreign limit / actual (%)
32.00/982.00 49.00/7.44
52 week High / Low (Bt)
7.30/4.48
Avg. daily T/O (shares 000)
16,007.00
NVDR (%)
2.54
Estimated free float (%)
36.4
Beta
0.93
URL
www.vgi.co.th ‐
CGR
Raenoo Bhandasukdi Analyst no. 17989 [email protected] 66 (0) 2695‐5836
Maintain “Underperform” rating; lower TP to Bt5.60/share We lower the SOTP‐based target price for VGI by 7% to Bt5.6/share, vs. Bt6.0/share previously, after the earnings revision regarding the contract termination with BIGC. Although VGI’s current price is significantly lower than our new TP, we maintain our “Underperform” rating as we expect the negative catalysts from both its own operation and a weak ad spending industry to continue to pressure VGI’s share price over the next six months. VGI to end Modern Trade advertising management business VGI decided to terminate its advertising management contract with BIGC after the latter could not prevent pirate advertising on VGI’s advertising space as specified in the contract. This will end the advertising management contracts in Modern Trade for VGI and it will now focus only on BTS‐related media, office buildings and other outdoor media. VGI is still looking to expand its business, both domestically and internationally, when opportunities arise. Revise down earnings in FY15‐16E by 17% and 11% We lower VGI’s earnings estimates in FY15‐16E by 17% and 11% to Bt872mn and Bt1,119mn, respectively, owing to both a weaker‐than‐ expected advertising industry and the loss of the BIGC contract. Expect net profit of Bt49mn in 4QFY15E We expect VGI to report net profit of Bt49mn in 4QFY15E (Jan‐Mar 15), falling by 75% YoY and 84% QoQ, owing mainly to extra expenses of Bt172mn related to the contract termination. Stripping out this extra item, VGI is likely to report normalized profit of Bt221mn, increasing by 15% YoY owing to the low base, but declining by 11% QoQ as a result of both the impact of the lost revenue from Tesco and the revenue slowdown from BTS‐related media due to the seasonal pattern. Financial and Valuation (Before XD) FY Ended 31 Mar FY13 Revenues (Btmn) 2,838 Net profit (Btmn) 902 EPS (Bt) 0.30 Norm. profit (Btmn) 902 Norm. profit growth (%) 224.02 Norm. EPS (Bt) 0.30 Dividend (Bt) 0.27 BV (Bt) 0.61 FY Ended 31 Mar FY13 PER (x) 15.44 EV/EBITDA (x) 10.13 P/BV (x) 7.64 Dividend yield (%) 5.82 ROE (%) 85.30 Net gearing (%) cash
FY14 3,149 1,146 0.33 1,146 27.08 0.33 0.32 0.57 FY14 13.90 9.20 8.15 6.90 60.71 cash
FY15E 2,978 991 0.25 872 (13.54) 0.20 0.20 0.33 FY15E 20.09 10.21 13.90 4.33 41.08 cash
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 7
FY16E 2,460 1,119 0.16 1,119 13.00 0.16 0.15 0.36 FY16E 28.45 9.06 13.02 3.16 46.97 cash
FY17E 2,643 1,228 0.18 1,228 9.71 0.18 0.16 0.39 FY17E 25.94 8.18 11.83 3.47 47.27 cash
VGI to end Modern Trade advertising management business VGI decided to terminate its advertising management contract with BIGC after the latter could not prevent pirate advertising on VGI’s advertising space as specified in the contract. According to VGI, this is likely to become effective by the end of this month, as VGI already notified BIGC on 16 April 2015. VGI will realize extra expenses related to the termination totaling Bt215mn, or Bt172mn after tax, in 4QFY15 (Jan – Mar 15). These expenses will mainly be related to asset write‐offs and employee payments. This will end the advertising management contracts in Modern Trade for VGI as the contract with Tesco already ended in February. VGI is likely to end its advertising management contract with Family Mart as well due to the small size of the business. Hence, for now VGI will focus on advertising management for BTS‐related media and office buildings, along with other media spaces, such as LED screens in outdoor areas, Chulalongkorn University’s bus advertising management, and Chamjuree Square advertising management, for which the company recently obtained a contract. VGI is still looking to expand its business, both domestically and internationally, when opportunities arise. Figure 1: VGI’s existing media management after halting its operation in Modern Trade stores BTS‐related media Office buildings & others
Source: VGI REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 7
Revise down earnings in FY15‐16E by 17% and 11% In regard to the contract termination and the related expenses as mentioned above, we now lower VGI’s earnings estimates in FY15‐16E by 17% and 11% to Bt872mn and Bt1,119mn, respectively. For FY15E (Apr 14 – Mar 15), we lower VGI’s revenue by 3% to Bt2,978mn, mainly owing to the decline of advertising revenue related to Modern Trade. This is due to the slower‐ than‐expected turnaround of the advertising industry, especially for Modern Trade, which is likely to be negatively affected by the weakening of private consumption. Meanwhile, we cut VGI’s revenue in FY16E (Apr 15 – Mar 16) by 30% to Bt2,460mn owing to the absence of revenue from Modern Trade. However, its gross profit margin (GPM) in FY16E is likely to improve to 73%, vs. 57% previously expected, as the GPM for Modern Trade revenue is significantly lower than the GPM from BTS‐related revenue. Figure 2: Key changes to our assumptions and revision to earnings forecasts FY15E New Advertising revenue (Btmn) % YoY BTS-related Modern Trade Office building & Others Gross profit margin (%) Net profit (Btmn)
Previous
FY16E % +/-
Previous
2,460
3,531
(17.4)
14.7
% +/(30.3)
2,978
3,079
(5.4)
(2.2)
1,818
1,761
3.2
2,067
2,034
1.6
979
1,099
(10.9)
0
1,245
(100.0)
(17.4)
55.9
181
219
54.5
55.2
872
1,047
(3.3)
New
(16.7)
393
252
72.9
57.3
1,119
1,260
(11.2)
Source: KT ZMICO Research
Expect net profit of Bt49mn in 4QFY15E We expect VGI to report net profit of Bt49mn in 4QFY15E (Jan‐Mar 15), falling by 75% YoY and 84% QoQ, owing mainly to extra expenses of Bt172mn related to the BIGC contract termination. Stripping out this extra item, VGI is likely to report normalized profit of Bt221mn, increasing by 15% YoY but declining by 11% QoQ. On a year‐on‐year basis, earnings are expected to improve owing to the rebound of the revenue of BTS‐related media along with GPM improvement. However, on a quarter‐to‐quarter basis, revenue is likely to decline significantly owing to both the impact of the lost revenue from Tesco and the revenue slowdown from BTS‐related media due to the seasonal pattern. According to Nielsen, the advertising industry (excluding cable and digital TV) shrank by 4% YoY and 13% QoQ in 1Q15, particularly in‐store, magazines, and terrestrial TV. Figure 3: Total ad spending growth in 1Q15 (% YoY) Figure 4: Ad spending for transit and in‐store media Btmn
450
Industry
-4.1%
Internet
29.5% -13.6% 14.3%
Outdoor
200
Cinema
12.8%
150
-15.3%
100
Newsprint
50
-1.8%
Radio
-25%
250
-0.1%
0
0.2% -6.4%
TV -15%
350 300
Transit
Magazine
In-store
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15
In Store
Transit
400
-5%
5%
15%
25%
35%
Source: Nielsen. Note: excluding ad spending via cable & digital TV for purposes of comparison REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 7
Figure 5: 4QFY15E earnings preview Profit and Loss (Btmn) Year‐end 31 Mar Revenue Gross profit SG&A EBITDA Interest expense Other income Income tax Other extra items Gn (Ls) from affiliates Net profit (loss) Normalized profit (loss) Reported EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%) Current ratio (x) Interest coverage (x) Debt/equity (x) BVPS (Bt) ROE (%) Revenue structure BTS‐related Modern Trade Office building & others
4QFY14 641 326 (112) 239 (0) 16 (37) ‐ (1) 193 193 0.056
3QFY15 789 422 (119) 346 (2) 15 (73) 53 4 301 248 0.088
4QFY15E 632 347 (89) 302 (4) 10 (48) (172) 5 49 221 0.007
% YoY (1.5) 6.6 (20.4) 26.0 n.m. (38.9) 31.7 n.m. n.m. (74.5) 14.7 (87.2)
% QoQ (20.0) (17.7) (25.1) (12.9) 114.9 (31.7) (33.7) (423.5) 6.9 (83.6) (10.7) (91.8)
FY14 3,149 1,807 (434) 1,459 (1) 47 (273) ‐ (1) 1,146 1,146 0.351
FY15E 2,978 1,624 (441) 1,339 (10) 49 (248) (119) 15 872 991 0.247
50.8 37.3 30.1 2.1 cash 0.0 0.6 41.5
53.5 43.9 31.4 1.3 174.3 0.1 0.7 45.5 494 247 48
55.0 47.8 35.0
57.4 46.3 36.4 2.1 cash 0.0 0.6 60.7
442 141 49
12.6 (36.0) 69.9
(10.4) (43.1) 0.6
1,679 1,295 175
54.5 45.0 29.3 1.1 118.3 0.1 0.3 46.8 1,818 979 181
393 220 29
% YoY (5.4) (10.1) 1.7 (8.2) n.m. 6.0 (9.3) n.m. n.m. (23.9) (13.5) (29.6) 8.3 (24.4) 3.3
Source: VGI, KT ZMICO Research Maintain “Underperform” rating; lower TP to Bt5.60/share After the earnings revision, we lower the SOTP‐based target price for VGI by 7% to Bt5.6/share, vs. Bt6.0/share previously. The valuation for VGI’s existing business is still based on DCF with a WACC assumption of 11%, with the value of the 24.89%‐owned MACO included based on consensus target price. VGI’s TP at Bt5.60 implies PER of 33x, close to the ‐0.5SD level of the historical average PER, which we believe suitably reflects the negative impact of the BIGC contract termination. Meanwhile, the implied PER of 33x is also in line with the average PER of PLANB and MACO, which operate out‐of‐home media just as VGI does. Although VGI’s current price is significantly lower than our new TP, we maintain our “Underperform” rating as we expect the negative catalysts from both its own operation and the weak ad spending industry to continue to pressure VGI’s share price over the next six months. Figure 6: Summary of SOTP‐based valuation for VGI Business
%
Valuation Method
Holding VGI’s existing business MACO SOTP‐based
24.89
Value to VGI (Bt)*
DCF (WACC 11%)
5.40
Consensus target price of Bt1.69
0.20 5.60
Source: KT ZMICO Research, Note: *not including shares reserved for VGI‐W1 REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 7
Figure 7: VGI’s PER band and sensitivity of market prices based on PER at difference standard deviation levels (X) 60 50
FY16E +1.0SD +0.5SD Average ‐0.5SD ‐1.0SD ‐1.5SD ‐2.0SD ‐2.5SD
+2 S.D. +1 S.D. Avg.
40 30
-1 S.D.
20
-2 S.D.
Apr-15
Jan-15
Mar-15
Dec-14
Oct-14
Nov-14
Jul-14
Aug-14
Jun-14
Mar-14
May-14
Jan-14
Feb-14
Oct-13
Dec-13
Sep-13
Jul-13
Aug-13
Apr-13
May-13
Mar-13
Feb-13
Dec-12
Oct-12
0
Nov-12
10
PER (x) 46.5 42.3 38.0 33.8 29.5 25.3 21.0 16.8
Implied market price (Bt) 7.44 6.76 6.08 5.40 4.72 4.04 3.36 2.68
Upside/Downside vs. current market price (%) 55.0 40.8 26.7 12.5 (1.7) (15.8) (30.0) (44.2)
Source: Bloomberg, KT ZMICO Research Figure 8: Peer comparison 15‐16E
PER (x)
PBV (x)
Yield (%)
ROE (%)
BEC WORLD PUBLIC CO LTD GMM GRAMMY PCL
‐43.3
n.a.
n.a.
n.a.
3.3
3.9
5.2
0.0
0.0
n.a.
‐74.8
‐24.8
‐13.9
76.2
49.3
12.2
17.1
22.7
23.1
20.2
3.9
4.6
4.4
3.8
3.7
4.2
17.5
20.3
22.7
11.9
13.0
11.2 4.6
MAJOR CINEPLEX GROUP PCL MCOT PCL RS PCL WORKPOINT ENTERTAINMENT PCL
14E 15E 16E 14E 15E 16E 14E 15E 16E 23.1 17.9 16.6 11.8 9.1 8.6 2.0 5.1 5.6
EV/EBITDA (x)
CAGR 6.1
14E 50.5
15E 52.3
16E 14E 15E 16E 53.5 12.0 9.6 9.0
8.9
22.1
18.0
17.1
1.5
1.3
1.3
3.4
4.4
4.5
6.6
7.5
7.6
6.4
5.0
55.7
44.6
27.5
18.2
9.3
8.2
7.0
1.8
3.0
4.3
22.5
33.9
42.9
11.2
12.5
8.3
252.1
525.0
63.0
48.4
6.6
5.6
5.3
0.1
0.8
1.4
1.3
11.2
11.8
31.9
25.6
21.1
MASTER AD PCL
22.5
36.0
22.0
22.0
6.6
0.2
0.2
2.7
2.3
3.0
19.8
21.3
20.4
28.5
14.5
12.8
PLAN B MEDIA PCL
32.3
n.a.
43.5
35.7
23.1
6.4
5.8
n.a.
2.0
2.0
n.a.
19.6
16.6
n.a.
24.1
19.1
Average (simple)
43.9
112.2
30.7
25.5
8.3
4.9
4.7
2.0
2.7
3.6
6.2
17.7
20.2
25.5
19.2
12.3
27.4
36.0
32.7
28.9
14.8
3.3
3.0
2.7
2.1
2.5
19.8
20.5
18.5
28.5
19.3
16.0
PLANB & MACO average (simple)
Source: Bloomberg, Note: *KT ZMICO Research estimates
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 7
Financial tables PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Equity earnings Other income / exp. EBT Corporate tax Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btm) Cash and equivalents Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Minority interests Shareholder equity Total liab. & shareholder equity CASH FLOW (Btm) Net income Depreciation & amortization Change in working capital FX, non‐cash adjustment & others Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) Core EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%) FINANCIAL QUALITY Total debt to capital employed (x) Net debt to equity (x) Interest coverage (x)
FY12 1,977 (1,295) 682 (282) 495 (95) 400 (1) 0 27 427 (148) (0) 278 0.28 0.28 278 0.28 0.40
FY13 2,838 (1,289) 1,548 (394) 1,250 (95) 1,155 (2) 0 34 1,187 (285) 0 902 0.30 0.30 902 0.30 0.27
FY14 3,149 (1,342) 1,807 (434) 1,459 (86) 1,374 (1) (1) 47 1,419 (273) 0 1,146 0.33 0.33 1,146 0.33 0.32
FY15E 2,978 (1,354) 1,624 (441) 1,339 (156) 1,183 (10) 15 (69) 1,119 (248) 0 872 0.25 0.13 991 0.23 0.20
FY12 381 0 228 705 1,314 0 0 1,021 0 293 1,314
FY13 1,254 0 473 852 2,579 0 0 758 0 1,821 2,579
FY14 503 0 923 1,315 2,741 0 0 788 0 1,953 2,741
FY15E 464 0 1,340 1,492 3,296 200 0 1,005 0 2,291 3,296
FY12 278 95 (47) 16 343 (69) 11 (59) (1) 0 (400) 0 (401) (117) 284 0.28
FY13 902 95 (437) 0 560 (321) 17 (304) 0 1,058 (440) 0 618 873 255 0.09
FY14 1,146 86 124 0 1,356 (570) (508) (1,078) 0 0 (1,014) 0 (1,014) (736) 277 0.08
FY15E 872 156 9 0 1,036 (600) (156) (756) 200 343 (878) 0 (334) (54) 281 0.04
FY12 41.1 47.0 60.7 34.5 25.0 20.2 14.1 14.1 34.7
FY13 43.5 152.6 224.0 54.6 44.0 40.7 31.8 31.8 24.0
FY14 11.0 16.7 27.1 57.4 46.3 43.6 36.4 36.4 19.2
FY15E (5.4) (8.2) (13.5) 54.5 45.0 39.7 29.3 33.3 22.1
FY12 0.00 cash cash
FY13 0.00 cash cash
FY14 0.00 cash cash
FY15E 0.08 cash cash
FY16E 2,460 (666) 1,794 (443) 1,526 (175) 1,351 (10) 17 41 1,399 (280) 0 1,119 0.16 0.16 1,119 0.16 0.15
FY17E 2,643 (696) 1,947 (476) 1,657 (186) 1,471 0 20 44 1,535 (307) 0 1,228 0.18 0.18 1,228 0.18 0.16
FY16E 123 0 1,433 1,382 2,938 0 0 464 0 2,475 2,939
FY17E 396 0 1,397 1,421 3,214 0 0 479 0 2,721 3,199
FY16E 1,119 175 (232) 0 1,062 (268) 0 (268) (200) 0 (935) 0 (1,135) (341) 794 0.12
FY17E 1,228 186 114 0 1,529 (150) 0 (150) 0 0 (1,105) 0 (1,105) 273 1,379 0.20
FY16E (17.4) 14.0 13.0 72.9 62.0 54.9 45.5 45.5 20.0
FY17E 7.4 8.6 9.7 73.6 62.7 55.6 46.5 46.5 20.0
FY16E 0.00 cash cash
FY17E 0.00 cash cash
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 7
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market return over six months period because of specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to below market return over six months period because of specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 7 of 7
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th
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KT•ZMICO Securities Company Limited
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