See disclaimer at the end of report

COMPANY UPDATE

Mono Technology MONO TB / MONO.BK

24 June 2015

Consolidated bottom-line turnaround in 4Q15-FY16

Sector: Media Neutral Rating: BUY

Target Price: Bt4.25 Price (23 June 2015): Bt3.30

Price chart

Investment thesis Despite the lesser FY15 bottom-line expectations and delayed breaking-even of its digital TV business, we remain optimistic over MONOs 4Q15-FY16 turnaround story, led by shallower loss at its digital TV business in 2H15 and its full-year turnaround to profit in FY16 (due to the sustainable rise of digital TV ratings, income from its new satellite TV channel and cost-cutting). Despite the target price cut, our BUY rating stands.

Digital ratings retreat slightly in May The rating (ages 4+ nationwide) of its MONO29 digital channel retreated a slight 1.2% MoM in May to 0.253 (from 0.256 in April), due to the high base set in April related to long-holiday seasonality. The SEA Games live broadcasts will negatively affect the ratings of all digital channels (including MONO) and boost those of analog channels in June. But, we believe this is a one-time effect before it normalizes in July. We expect more content CAPEX of Bt300-400m in 2H15 and assume Bt1bn in content CAPEX in FY15. Given sustained high-quality content33 movies/weekwe expect its ratings to rise further in 2H15.

Shallower TV net loss in 2H15 before break-even reached in FY16 Based on the TV ad bookings in hand, we estimate Bt70-75m/month in ad receipts (including digital and Zaa Network satellite TV) for 3Q15 and Bt90m per month in 4Q15 (up from Bt50-55m/month during April-May 2015), led by greater TVC utilization rate and mean ad rates. We estimate that its digital utilization rate will rise to 80% in 2H15, up from 70% in 2Q15 and 50% in 1Q15. We expect its mean digital ad rate to rise to Bt25k/min in 2H15 (Bt22k/min in 3Q15 and Bt27k/min in 4Q15), up from Bt17k/min in 2Q15 and Bt10k/min in 1Q15.

Overall, we assume the mean digital ad rate of Bt18k/min for FY15, up 235% YoY. In July, it will launch Zaa Network Plus, a new satellite TV channel to appear as a new channel on the PSI platform. We expect its stand-alone digital TV to post a shallower net loss in 2H15 and reach break-even in 1H16 (against our Bt345m net loss estimate for FY15).

QoQ deeper consolidated net loss estimate for 2Q15 We estimate a Bt80m net loss for 2Q15, 18% QoQ deeper in the red and a reversal from Bt4m 2Q14 net profit, due to one-time staff layoff expenses. The firm has implemented cost-cutting programs through business unit consolidation, which will save Bt7.5m/month in OPEX by the end of 3Q15 and enable it to post consolidated profit in 4Q15.

FY15 bottom-line and target price downgrades We revised down our FY15 bottom-line forecast to Bt132m net loss (from Bt149m net profit) due to a 13% cut in our revenue projection (to Bt2.28bn) caused by the MVAS and digital revenue downgrades and the greater SG&A assumption related to the one-time staff layoff expenses in 2Q15. Our target price declines to Bt4.25 (down by 28%).

0

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150

3

5

7

9

06/14 08/14 10/14 12/14 02/15 04/15 06/15

Price Rel. to SETBt Rel. Idx

Share price perf. (%) 1M 3M 12MRelative to SET (5.9) (16.3) (61.1) Absolute (6.3) (17.1) (58.2)

Key statistics Market cap Bt10.2bn USD0.3bn

12-mth price range Bt3.1/Bt8.812-mth avg daily volume Bt65m USD1.9m# of shares (m) 3,081 Est. free f loat (%) 22.6 Foreign limit (%) 49.0

Consensus rating

BLS Target price vs. Consensus

BLS earnings vs. Consensus

29

43

29

020406080

100

1

Buy%

Hold

Sell4.2

4.3

4.3

4.4

BLS Cons.BLS Cons.

Bt

-200-100

0100200300

15E 16E

BLS Cons.Btm

Financial summary FY Ended 31 Dec 2014 2015E 2016E 2017E

Revenues (Btm) 1,526 2,279 3,445 4,440Net profit (Btm) 39 (132) 161 243EPS (Bt) 0.01 (0.04) 0.04 0.06EPS growth (%) -96.7% n.m. n.m. +39.3%Core profit (Btm) 39 (132) 161 243Core EPS (Bt) 0.01 (0.04) 0.04 0.06Core EPS growth (%) -96.5% n.m. n.m. +39.3%PER (x) 420.0 n.m. 75.6 54.3PBV (x) 5.5 2.8 2.8 2.6Dividend (Bt) 0.0 0.0 0.0 0.1Dividend yield (%) 0.8 0.0 1.1 1.6ROE (%) 1.3 (3.8) 3.8 5.1

CG rating

Prasit Sujiravorakul Securities Fundamental Investment Analyst prasit@bualuang.co.th +66 2 618 1342

MONO - 2

MONO : Financial Tables Year PROFIT & LOSS (Btm) 2013 2014 2015E 2016E 2017ERevenue 1,407 1,526 2,279 3,445 4,440Cost of sales and services (566) (1,025) (1,615) (1,979) (2,494)Gross profit 841 501 664 1,466 1,946SG&A (389) (588) (849) (1,274) (1,621)EBIT 452 (87) (185) 192 325Interest expense (3) (15) (37) (59) (90)Other income/exp. 91 77 54 54 55EBT 540 (26) (169) 187 290Corporate tax (39) 64 37 (26) (47)After-tax net profit (loss) 501 39 (132) 161 243Minority interest 0 0 0 0 0Equity earnings from affiliates 0 0 0 0 0Extra items 0 0 0 0 0Net profit (loss) 501 39 (132) 161 243Reported EPS 0.39 0.01 (0.04) 0.04 0.06Fully diluted EPS 0.36 0.01 (0.04) 0.04 0.06Core net profit 501 39 (132) 161 243Core EPS 0.36 0.01 (0.04) 0.04 0.06EBITDA 512 217 620 1,020 1,226KEY RATIOSRevenue growth (%) (8.5) 8.4 49.3 51.2 28.9Gross margin (%) 59.8 32.8 29.1 42.5 43.8EBITDA margin (%) 36.4 14.2 27.2 29.6 27.6Operating margin (%) 38.6 (0.7) (5.8) 7.1 8.6Net margin (%) 35.6 2.5 (5.8) 4.7 5.5Core profit margin (%) 35.6 2.5 (5.8) 4.7 5.5ROA (%) 24.6 0.9 (1.8) 1.8 2.3ROCE (%) 27.7 1.2 (2.8) 2.5 3.1Asset turnover (x) 0.7 0.3 0.3 0.4 0.4Current ratio (x) 12.4 2.3 3.4 4.5 5.0Gearing ratio (x) 0.0 0.1 0.5 0.6 0.7Interest coverage (x) 199.4 14.1 16.6 17.2 13.6BALANCE SHEET (Btm)Cash & Equivalent 2,277 998 2,000 3,323 4,554Accounts receivable 403 578 653 987 1,273Inventory 7 8 19 23 29PP&E-net 220 504 1,139 1,389 1,624Other assets 449 3,618 4,759 3,898 4,139Total assets 3,356 5,705 8,570 9,622 11,620Accounts payable 200 367 570 698 880ST debts & current portion 17 13 14 14 14Long-term debt 15 409 2,003 2,503 3,703Other liabilities 32 1,953 1,954 1,973 1,996Total liabilities 263 2,742 4,541 5,188 6,592Paid-up capital 140 308 339 370 400Share premium 2,699 2,699 3,438 4,176 4,915Retained earnings 406 109 142 74 (1)Shareholders equity 3,093 2,963 4,029 4,433 5,027Minority interests 0 0 0 0 0Total Liab.&Shareholders' equity 3,356 5,705 8,570 9,622 11,620CASH FLOW (Btm)Net income 501 39 (132) 161 243Depreciation and amortization 59 304 805 829 901Change in working capital (35) (221) 188 (173) (135)FX, non-cash adjustment & others (348) 229 (395) (398) (134)Cash flows from operating activities 178 350 466 419 875Capex (Invest)/Divest (66) (1,607) (1,183) (1,306) (1,319)Others 48 (63) (425) 124 13Cash flows from investing activities (18) (1,670) (1,607) (1,183) (1,306)Debt financing (repayment) 2,390 (6) 1,690 1,339 1,754Equity financing 2,720 739 739 739 739Dividend payment (585) (31) 141 (125) (195)Others 48 (63) (425) 124 13Cash flows from financing activities (3) 2,112 1,690 1,339 1,754Net change in cash 157 792 549 575 1,324Free cash flow (Btm) 113 (1,257) (716) (887) (444)FCF per share (Bt) 0.1 (0.4) (0.2) (0.2) (0.1)KEY ASSUMPTIONS 2013 2014 2015E 2016E 2017ESubscribers (m) 11.3 12.4 13.1 13.5 14.3 ARPU (Baht/month/sub) 9.0 7.6 6.0 6.1 6.2 Digital TV revenue (Btm) - - 867 1,925 2,822 Digital TV net ad rate ('000 Bt/min) - - 18 30 38 Digital TV mean utilization rate (%) - - 55% 61% 71%

0.00.51.01.52.02.53.0

(20)(10)

0102030405060

11 12 13 14 15E 16E 17E

Revenue growth (%) (LHS)Asset turnover (x) (RHS)

% x

0

50

100

150

11 12 13 14 15E 16E 17E

AR / Sales (days)AP / Cost of Goods (days)

days

(20)

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20

40

60

80

11 12 13 14 15E 16E 17E

Gross margin (%)EBIT margin (%)%

050100150200250300350

0.00

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1.00

1.50

2.00

11 12 13 14 15E 16E 17E

Capex (Bt,bn)Capex / Net PPE (%)Bt,bn %

0.00.51.01.52.02.53.03.5

11 12 13 14 15E 16E 17E

(ST debt + Interest) / EBITDA(Debt + Interest) / EBITDA

x

0.00 0.00

0.29

0.04 0.00

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050100150200250300350

0.00.10.10.20.20.30.30.4

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Dividend (Bt)Payout ratio (%)

Bt/Shr %

Revenue growth and asset turnover

A/C receivable & A/C payable days

Profit margins

Capital expenditure

Debt serviceability

Dividend payout

MONO - 3

MONO : Financial Tables Quarter QUARTERLY PROFIT & LOSS (Btm) 1Q14 2Q14 3Q14 4Q14 1Q15Revenue 309 356 410 452 466Cost of sales and services (176) (244) (275) (330) (356)Gross profit 133 112 136 121 110SG&A (112) (143) (144) (190) (194)EBIT 21 (31) (8) (69) (85)Interest expense (0) (1) (7) (7) (7)Other income/exp. 20 16 17 24 13EBT 41 (16) 2 (52) (78)Corporate tax 3 20 16 25 10After-tax net profit (loss) 43 4 19 (26) (68)Minority interest 0 0 0 0 0Equity earnings from affiliates 0 0 0 0 0Extra items 0 0 0 0 0Net profit (loss) 43 4 19 (26) (68)Reported EPS 0.03 0.00 0.01 (0.01) (0.02)Fully diluted EPS 0.03 0.00 0.01 (0.01) (0.02)Core net profit 43 4 19 (26) (68)Core EPS 0.03 0.00 0.01 (0.01) (0.02)EBITDA 45 41 90 41 56

KEY RATIOSGross margin (%) 42.9 31.3 33.1 26.8 23.5EBITDA margin (%) 14.6 11.4 22.1 9.0 12.1Operating margin (%) 13.3 (4.2) 2.1 (10.0) (15.3)Net margin (%) 14.0 1.0 4.5 (5.9) (14.6)Core profit margin (%) 14.0 1.0 4.5 (5.9) (14.6)BV (Bt) 2.2 2.1 1.0 1.0 0.9ROE (%) 5.6 0.5 2.5 (3.6) (9.3)ROA (%) 5.1 0.3 1.3 (1.9) (4.8)Current ratio (x) 9.2 3.5 2.7 2.3 1.8Gearing ratio (x) 0.0 0.1 0.1 0.1 0.1Interest coverage (x) 92.0 30.3 13.4 6.0 8.2

QUARTERLY BALANCE SHEET (Btm)Cash & Equivalent 1,650 1,598 1,304 998 689Accounts receivable 290 385 485 578 610Inventory 6 6 9 8 10PP&E-net 415 468 486 504 550Other assets 1,034 3,144 3,404 3,618 3,830Total assets 3,395 5,601 5,688 5,705 5,689Accounts payable 195 254 359 367 415ST debts & current portion 17 26 14 13 11Long-term debt 15 415 412 409 407Other liabilities 35 1,914 1,921 1,953 1,960Total liabilities 262 2,609 2,706 2,742 2,793Paid-up capital 140 140 308 308 308Share premium 2,699 2,699 2,699 2,699 2,699Retained earnings 449 307 130 109 41Shareholders equity 3,133 2,992 2,982 2,963 2,896Minority interests 0 0 0 0 0Total Liab.&Shareholders' equity 3,395 5,601 5,688 5,705 5,689

KEY STATS 1Q14 2Q14 3Q14 4Q14 1Q15MVAS revenue (Btm) 254 265 300 303 269 Media revenue (Btm) 36 59 81 125 148 Entertainment revenue (Btm) 19 32 29 24 49

87 100

111 121

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020406080100120

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100.0200.0300.0400.0500.0600.0

3Q13 1Q14 3Q14 1Q15

Accum. Profit (Bt,m)% of FY Profit

Bt,m %

(30)(20)(10)

010203040

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FY EBIT margin (%)EBIT margin (%)%

-30.0-20.0-10.00.010.020.030.040.050.060.0

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%

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Net profit trend (accumulated)

EBIT margin

Gross profit margin

Company profile

Mono Technology Plc (MONO) was established in March 2002 with an initial registered capital of Bt50m. It is currently engaged in three businesses: 1) mobile value-added services (MVAS), 2) media (including Internet, publishing, satellite and digital TV) and 3) entertainment (including music and movies). As of 1Q15, 58% of consolidated revenue was from MVAS, followed by media (32%) and entertainment (11%). MONO Broadcast Co Ltd, its wholly-owned subsidiary, acquired the digital TV license for the Standard-Definition (SD) Variety channel from the NBTC in December 2013.

MONO - 4

Figure 1: Revenue breakdown, by quarter Figure 2: Gross profit breakdown, by quarter

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Media

Entertainment

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165 153

129 115

131 133

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(50)

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1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

MVAS and media Entertainment

(Btm)

Source: Company data Source: Company data

Figure 3: MONOs rating, by month (4+ nationwide) Figure 4: MONOs rating relative to peers (4+ nationwide)

0.021 0.043

0.065

0.096 0.113 0.114 0.112

0.129

0.232 0.225 0.240

0.256 0.253

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0.169 0.163

0.461 0.321

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0.275 0.283 0.306 0.298

0.314

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0.226

0.256

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0.375

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0.031 0.040 0.038 0.044 0.026

0.026 0.044 0.058 0.092

0.128 0.119 0.178

0.225 0.195

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Channel 8 (RS)Workpoint TV (WORK)GMM channel (GRAMMY SD)ONE (GRAMMY HD)MONO29 (MONO)

Source: The Nielsen Company

Source: The Nielsen Company

Figure 5: MONOs ad spend and audience shares Figure 6: Gross margin breakdown, by quarter

0.28%0.53%

0.79%

1.17%1.38%1.44%

1.49%1.79%

3.33%3.15%

3.26%3.51%

3.42%

1.84%

2.06%2.34%

2.31%

1.55%

2.31%

2.59% 2.66%2.83%

0.0%

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Jun-

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Jul-1

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Oct

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Feb

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Mar

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Apr

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May

-15

Audience share

Ad spend share

67.8% 65.5%55.0%

51.0%45.4%

35.3% 34.9%31.1%

25.8%

41.7%

15.0%

53.3%

24.0%

12.0%

-10.0%

14.3%

-50.0%

4.3%

-60%

-40%

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0%

20%

40%

60%

80%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

MVAS and media

Entertainment

Source: The Nielsen Company Source: Company data

MONO - 5

Regional Comparisons Bloomberg Price Market Cap

Code (local curr.)(US$

equivalent) 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E

Nextnation Communication NNCB MK MYR0.1 53 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.Mitake Information Corp 8284 TT TWD47.3 48 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.NHN Corp 035420 KS KRW640,000 19,072 31.4 23.8 33.2 32.6 8.2 6.2 31.0 30.6 0.1 0.2Tencent Holdings 700 HK HKD158.1 191,193 37.4 28.6 5741.2 31.1 10.9 8.1 31.5 30.8 0.3 0.4Yandex NV YNDX US USD15.9 5,149 23.6 19.1 -35.9 25.4 4.0 3.3 19.8 19.7 0.0 0.1Sina Corp SINA US USD58.5 3,411 85.5 41.1 -103.9 -887.7 1.5 1.5 1.8 4.3 0.0 0.0Netease Inc NTES US USD150.4 19,653 19.7 16.2 19.3 22.1 4.3 3.6 23.1 22.9 1.1 1.4RS RS TB THB14.40 429 27.0 21.1 8.4 90.6 7.4 6.7 22.2 37.5 2.9 3.7GMM Grammy GRAMMY TB THB13.50 328 n.m. 26.0 n.m. n.m. 3.1 2.8 -0.3 12.7 0.0 0.0Workpoint Entertainment WORK TB THB39.50 488 74.8 64.3 574.8 16.3 5.2 5.0 9.2 8.1 0.7 0.8Mono Technology MONO TB THB3.30 301 n.m. 75.6 n.m. n.m. 2.8 2.8 -3.8 3.8 0.0 1.1Simple average 42.8 35.1 891.0 -95.7 5.3 4.4 15.0 18.9 0.6 0.8

PER (x) EPS Growth (%) PBV (x) ROE (%) Div Yield (%)

Foreign holding

1.90

10

20

30

1/15 2/15 3/15 4/15 5/15 6/15

MONO Media%

MONO - 6

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