iTV demise leaves more wealth for fewer players

Big firms gain from ad revenue but sector's first-place ranking is skewed by massive gains in small, speculative stocks

WORANUJ MANEERUNGSEE

The closure of iTV last year brought a big windfall for some media and publishing companies and the momentum is continuing this year.

The Radio and Broadcasting Act that took effect in March of this year has offered further encouragement to media companies. Among other reforms, it legalises all cable TV operators and also allows them to air up to six minutes of commercials an hour.

The media and publishing sector was the best performer among 25 sectors on the Stock Exchange of Thailand, delivering 164.88% in total shareholder returns over one year and 14.03% over 10 years.

The impressive performance last year came despite the fact that advertising spending in Thailand grew marginally at 2.5% year-on-year to 92 billion baht, due largely to the impact of political and economic uncertainties.

BEC World Plc, the sector leader with capitalisation of 57.5 billion baht, delivered a 41.5% one-year TSR, 12.4% over five years and 8.3% over 10 years.

Chatchai Thiamthong, the vice-president of BEC, the operator of television Channel 3, said the ending of the iTV saga by the military government early last year prompted advertisers to shift budgets to other free-to-air TV stations including Channels 3, 5, 7 and 9.

"Everyone benefits from iTV being off the air, but it depends on how good they are," said Mr Chatchai.

ITV, which went off the air and was renamed TITV last year, has been transformed to the commercial-free public broadcaster Thailand Public Broadcasting Service (Thai PBS).

Because advertiser demand was high but commercial airtime was limited because there was one less station in the market, many stations including Channel 3 were able to raise their airtime fees.

BEC had a record year in 2007, reporting a net profit 2.24 billion baht, 37% higher than in the previous year.

MCOT Plc, the majority state-owned broadcaster that runs Modern Nine TV, did not perform as well as BEC, but it was able to deliver a 15.7% TSR over one year and 8.8% over three years.

Mr Chatchai predicted the outlook for TV this year would be better than it was last year. "The market is growing but has fewer players," he said.

An analyst at Kim Eng Securities agreed with Mr Chatchai, saying that the industry prospects would improve, thanks to growing consumer confidence in the economy. As well, global events such as the Euro 2008 football tournament and the 2008 Olympics in Beijing will spur the advertising industry overall.

Another analyst noted, however, that the P/E (price-to-earnings) ratio of BEC was relatively high at 21 times, so it might be difficult for its share prices to go too much higher in the near term.

Looking at one-year TSR, not only did the free-to-air TV operators do well, but so too did the satellite TV content providers. Traffic Corner Holdings Plc (TRAF) produced the highest one-year TSR among 21 companies in the sector at 3,595.65%, but 23.79% over five years. (The company this month changed its name to M Pictures Entertainment Plc and its trading symbol to MPIC.)

Live Incorporation Plc (LIVE), formerly known as BNT Entertainment, ranked the second highest, delivering 1,171.6% over one year, 317.6% over three years and 216.96% over five years.

Several brokers said they did not monitor shares of LIVE and TRAF closely, as they were smaller speculative stocks popular mainly with day-traders.

The analysts said TRAF was popular partly because Major Cineplex Group Plc (MAJOR), the country's biggest cinema chain operator, become the major shareholder in TRAF last year.

Live CEO Sivaporn Chomsuwan admitted his company's shares were the target of heavy speculative trading among retail investors, though its balance sheet did not reflect the share price movement.

However, Mr Sivaporn said his company had cut underperforming businesses while strengthening strong units such as content provision for satellite TV, radio and out-of-home media.

The prospects of the company in 2008 should be better since it is expanding into movies. Two films -  The Coffin and Prey, co-produced with foreign producers -  will be will be shown in the third quarter of the year, he said, and projected its revenues would grow by between 10% and 15% this year.

Not every firm in the sector had a banner year from an investor's point of view. RS Plc, the country's second-largest entertainment company, had a one-year TSR of -32.61% and 8.75% over three years. It blamed the reduction of TV programmes and radio stations as a main factor for lower revenue last year.

In addition, RS started 2007 with bad news -  the cancellation of the New Year countdown event due to the Dec 31, 2006 bombings in Bangkok. As well, imported shows did poorly and the cancellation of illusionist David Copperfield's Bangkok performance in October resulted in losses in the third quarter.

The top entertainment firm GMM Grammy Plc (GRAMMY) and affiliate GMM Media Plc (GMMM) performed differently. GRAMMY's one-year TSR was 44.93% but it delivered -12.68% over three years and -5.4% over five years. GMMM delivered a one-year TSR of 28.95%, -14.6% over three years and -11.47% over five years.

The Grammy Group's new strategy started to bear fruit last year. It has reduced its heavy dependence on physical product sales because of the movement to digital downloads, as well as perennial problems with piracy. Instead, it is paying more attention to artist management, copyright and digital music business. The new business model offers lower costs but much higher margins.