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Published on March 27, 2008

Prime Minister's Office Minister Jakrapob Penkair seems set to sack MCOT president Wasan Paileeklee for the company's poor performance in January, but securities analysts think otherwise.

Most are maintaining a "buy" recommendation on MCOT shares.

"The PM's office minister hinted the performance of MCOT's president had been sub-par. However, quarterly earnings improvements point to the contrary - more towards recovery than contraction. Further falls in the share price should be viewed as another accumulation opportunity," KGI Securities (Thailand) said in a note released yesterday.

Stock Exchange of Thailand (SET) data show the operator of TV Channel 9 recorded a net profit of Bt397.78 million in the fourth quarter of 2006 - the first quarter after current Commerce Minister Mingkwan Sangsuwan resigned as MCOT president.

MCOT's earnings appear to have regained momentum after Wasan took the president's post late in last year's first quarter. The company recorded a net profit of Bt242.77 million in last year's second quarter, Bt296.95 million in the third quarter and Bt328.9 million in the fourth quarter.

KGI Securities (Thailand) is among the brokers recommending "buy" for MCOT shares. The broker has set a target price of Bt36.75 for the shares this year, based on the discount-cash-flow method.

The issue should become clearer after nine of the 12 board members are selected next week by the new government and officially appointed late next month. They will re-evaluate the president's performance again in June, the broker said.

"Share-price pressure should be short-lived this time. In addition, it is reasonable to believe that even if he is replaced, a new president should be able to fill in rather quickly, and earnings should not be affected much," KGI Securities said.

Jakrapob yesterday said he would establish a committee to evaluate Wasan's performance, because he was dissatisfied with MCOT's Bt27-million loss in January if concession revenue from BEC World and True Vision is excluded.

He also hinted that a change in MCOT's presidential post might occur at an ordinary shareholders' meeting to take place late next month or in early May.

Wasan said he could explain the reason for January's loss, because everyone knew a "special event" had occurred, in an apparent reference to the death of Her Royal Highness Princess Galyani Vadhana. He is confident that MCOT's earnings this year will achieve the growth target of 15-20 per cent year on year.

"I took over the helm at MCOT in March 2007. Earnings in the second half of last year exceeded those in the first half by 35 per cent, and earnings are tending to improve this year," he said.

SET president Patareeya Benjapholchai said the situation did not require any clarification from MCOT, because the impact on the company's share price was not significant. Also, MCOT disclosed its earnings on a quarterly basis rather than monthly.

MCOT's share price has fallen 4.27 per cent from Monday's close of Bt29.25, when Jakrapob said he was unhappy with Wasans' performance. It closed yesterday at Bt28.

Sixty per cent of MCOT's revenue comes from its television business and 20 per cent each from radio and concessions.

Phatra Securities is another broker maintaining its "buy" recommendation on MCOT shares, on anticipation that the company will benefit from higher advertising expenditure this year and an influx of advertising from TITV, which has been renamed TPBS.

"The share price could suffer in the short term, since investors do not like uncertainty," the broker said. "However, we think MCOT's share price has already reflected a large part of this uncertainty, so we do not expect the share-price drop to be too severe."

Despite its strong fundamentals, MCOT's share price is unlikely to outperform the SET Index until the issue of its president is settled, Phatra Securities said. Should the company need to find a new president, the process could take four or five months.

"However, our main concern is the government's policy towards MCOT. If political interference forces MCOT to compromise on its programme quality, especially news and news analysis, audience share and advertising revenue will suffer, and we may have to reconsider our earnings estimates and rating," the broker said. Thanachart Securities said it was highly possible Wasan would be forced to resign from his post.

"This should create uncertainty about the company's business direction. However, with a pro-business-type government, we do not expect this change to severely undermine MCOT's fundamentals," Thanachart said.

Kiatnakin Securities, however, was more pessimistic. It downgraded its recommendation for MCOT shares from "buy" to "sell", in order to mitigate risks from a change in the company's president.

MCOT may repeat what happened when Mingkwan resigned in 2006, the broker said, pointing out that advertising expenditure then allocated to Channel 9 slowed down, because of uncertainty about the channel's programming.

In the worst-case scenario, with a new president for MCOT, the broker estimates the company's television revenue would be flat this year, equalling last year's Bt2.29 billion, and its total revenue would be Bt4.03 billion for a net profit of Bt1.11 billion.

On the other hand, if there is no change in president, the broker predicts MCOT's television revenue will rise at an annual rate of 18 per cent to Bt2.68 billion this year. Its total revenue and net profit will also jump 15 per cent and 26 per cent year on year to Bt4.42 billion and Bt1.4 billion, respectively.

The broker said MCOT's January loss was due to external factors, because the station temporarily halted 70 normal shows to broadcast special programmes of condolence following the death of Her Royal Highness Princess Galyani Vadhana. On top of that, January is also the low season for TV business.

The broker believes MCOT's earnings will show a return to normal in February and March.

Oranan Paweewun

The Nation