MCOT

MCOT

Investment thesis
We expect planned digital network-sharing among the four state-run network (Mux) licensees to benefit MCOT by saving about Bt1bn a year in CAPEX requirements. We will factor the incremental value from the Mux license into our model once the NBTC announces network rental fees (a month or so before the channel license auctions). Our BUY rating stands, premised on strong FY13 earnings, scope for upside from digital TV licenses, a cheap valuation and a generous yield.
Single network rental prices to be concluded in July or August 
Executives from the four state-controlled network (multiplexer: Mux) licensees—Channel 5, MCOT, Channel 11 and TPBS—met on July 2 to discuss digital TV infrastructure-sharing. They agreed to use 34 broadcast towers owned by TPBS and five towers owned by MCOT as the main digital TV towers in the first year for 50% network coverage. The four state firms aim to share 153 broadcast towers in order to achieve 95% network coverage within three years, which would be one year ahead of the NBTC’s requirement. The annual CAPEX saving is estimated at about Bt1bn for each operator.
The four Mux licensees have each submitted network rental price proposals to the NBTC. MCOT proposed mean four-year prices of Bt5m/month for standard-definition (SD) channels and Bt15-20m/month for HD channels. The others offered Bt2-5m/month ranges for SD channels and Bt5-15m/month ranges for HD channels. All agreed to offer a single network rental price to channel operators. That guidance is in line with our assumptions of digital rental revenue for MCOT—Bt5m/month/SD channel and Bt12.5m/month/HD channel—which would bring its annual Mux rental revenue to Bt660m.
Assuming a net margin of 15-20%, one Mux license could add Bt100-130m to MCOT’s annual profit (4-6%) and Bt3-4/share to our YE13 target price (pegged to a PER of 19.7x). We will factor the incremental value from a Mux license into our model once the NBTC announces network rental prices a month or so ahead of the auction. We now estimate MCOT’s digital facility and network business CAPEX at Bt2-2.5bn (we previously assumed Bt3-3.5bn).
EPL rights decision by July
Mr Anek Permvongseni, MCOT’s president, said the board is considering two options for obtaining live broadcast rights to English Premier League (EPL) football matches: 1) an annual payment of Bt165m for three years and 2) a Bt70m one-time payment plus a 65:35 (MCOT:CTH) revenue-sharing scheme. We believe that the second option would be the better choice for MCOT, as the CAPEX would be lower. If it were to be the only free-to-air terrestrial TV broadcaster to obtain EPL rights, there would be scope for upside to our revenue and earnings forecasts.