VGI – 3QFY17/18 profit seen up y-y on MACO and group synergies February 7, 2018
3QFY17/18 profit seen up 39.6% y‐y on MACO and group synergies: We expect VGI to report a 39.6% y‐y rise in 3QFY17/18 profit to Bt174mn, driven largely by MACO and group synergies. For the period, total revenue is forecast to rise 41.2% y‐y on the back of (i) a boost from MACO after the consolidation of Comass since Jul 2017, (ii) a conversion of 21 static to digital billboards in the provinces, and (iii) more group synergies following a rise in number of stations under its cross‐media ‘station sponsorship’ campaign to 9 from 3 a year earlier though revenue from digital services took a hit from the effect of the royal cremation ceremony for the late monarch in Oct 2017. Costs and expenses tend to follow revenue higher following the consolidation of Comass. Interest expenses are also set to climb higher as a result of the increased debt load to fund the acquisition of Rabbit Group.
Outlook still rosy for 4QFY17/18 amid recovery in ad industry: A pickup in ad spending since Dec 2017 after the end of the royal cremation ceremony for the late monarch could be a good sign for VGI in 4QFY17/18 compared to 4QFY16/17 when ad spending remained in the doldrums. The number of office buildings under media management contracts has increased to 172 in 4QFY17/18 in line with its target to add 10 new office buildings to its portfolio per annum. Further investments in other companies should also mean more profits from affiliates and help expand its ad network. For the whole of FY17/18, we however expect VGI to see a flat profit at best as soaring costs and expenses outweigh revenue growth.
Rating upgrade to ‘ACCUMULATE’ with FY18/19 target price of Bt6.80/share: Rolling forward our valuation base to FY18/19, we bump up our target price for VGI to Bt6.80/share. We also upgrade our rating on VGI to ‘ACCUMULATE’ based on its earnings recovery story in FY18/19 and more upside from current trading levels. Our forecast suggests continued economic growth prospects will pave the way for VGI to stage a revenue and earnings comeback in FY18/19. We estimate VGI will deliver profit growth of 22.9% y‐y to Bt1,012mn in FY18/19.