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GMM Grammy
GRAMMY <Bt17.90>

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KIM ENG RESEARCH CENTER

February 4, 2003

Grammy expected to record very strong earnings growth in 4Q02

We have adjusted our earnings forecast of GMM Grammy (GRAMMY) to reflect very strong music sales and improved performance of Taiwan business. We expect 4Q02 profit to increase 17% qoq to Bt188mn, bringing full-year earnings to Bt633mn or Bt1.27/share, up 216% from 2001.

Music sales in 4Q02 should be very strong due to the launch of Bird’s latest album, which has sold almost 3mn copies within two months. Meanwhile, TV and radio production income will benefit from a pick-up in ad spending. Also, we believe that Grammy’s gross margins on music sales have widened as the company has expanded its manufacturing capacity to produce more CDs and VCDs in-house.

Grammy can afford to pay out a high dividend ratio with its net cash position. We estimate that Grammy will pay a final dividend of Bt0.70-1.00 per share after already paying an interim dividend of Bt0.50 from 1H02 earnings. Trading on relatively low 2003 PER of 12.2x, Grammy is rated as a BUY with fair value estimate of Bt26.

GRAMMY earnings summary

As of	Net Profit	Growth	EPS	PER	EV/EBITDA	P/BV	P/SALES
Dec.	(Bt mn)		(Bt)	(x)	(x)	(x)	(x)
1999	241	1%	0.48	37.08	14.56	2.57	2.86
2000	317	31%	0.63	28.23	9.88	2.71	2.34
2001	200	(37%)	0.40	44.69	11.92	2.98	1.97
2002F	633	216%	1.27	14.13	6.12	2.54	1.66
2003F	734	16%	1.47	12.20	5.13	2.47	1.42
2004F	844	15%	1.69	10.60	4.82	2.40	1.23

Source : Kim Eng Research

We forecast Grammy to post 4Q02 net profit of Bt188mn, up 17% qoq and 238% yoy. Music sales, accounting for more than 50% of total revenues, are projected to grow 18% qoq to Bt859mn due partly to Bird’s latest album, which has sold almost 3mn copies during November and December. However, music sales are likely to remain flat in terms from the previous year after dramatic growth in 4Q01 following a price reduction in August 2001.

After suffering losses for three years, Grammy’s Taiwan business has turned in a small profit in 4Q02, bringing its full-year loss to less than Bt80mn compared with a loss of Bt252mn in 2001. However, Grammy is still considering divesting this business within 1Q03 or 2Q03.

TV production income is expected to rise 34% yoy to Bt133mn on the back of programme adjustment and total TV ad spending growth of 25% yoy in 4Q02. We expect radio unit to show a 79% yoy growth to Bt373mn given the company’s leading position in radio market and a 34% yoy jump in total radio ad expenditure.

Concert, movies and copyright income is likely to increase 31% qoq and 43% yoy due to Bt50-60mn in revenue from Grammy’s movie – Mekong Full Moon Party. Even though this movie will record a small profit of about Bt10mn, Grammy’s movie production arm should still record a loss as the company has realized some costs of a new movie entitled February to be launched this month.

We expect Grammy to record 4Q02 gross margins of 51.6%, compared with 50.5% in 3Q02 and 45.5% in 4Q01. This is partially due to Grammy producing more of its own CDs and VCDs in-house following the installment of new manufacturing equipment in May 2002.

GRAMMY 4Q02 earnings forecast

Income statement (Bt mn)	4Q02F	3Q02	QOQ	4Q01	YOY	2002F	2001	YOY
Sales	1,600	1,330	20%	1,333	20%	5,451	4,604	18%
Music sales	859	731	18%	863	(0%)	3,010	2,683	12%
TV production	133	105	27%	100	34%	447	403	11%
Radio production	373	257	45%	209	79%	1,103	770	43%
Concert,movies,copyrights	120	92	31%	84	43%	381	256	49%
Other income	115	145	(21%)	78	48%	509	493	3%
COG	774	659	18%	726	7%	2,735	2,741	(0%)
Gross margin (%)	51.61%	50.47%	N.A.	45.53%	N.A.	49.82%	40.46%	N.A.
SG&A	494	399	24%	482	2%	1,660	1,403	18%
Net profit	188	160	17%	55	238%	633	200	216%
EPS (Bt)	0.38	0.32	17%	0.11	238%	1.27	0.40	216%

Source : Kim Eng Research

Analyst: Suttatip Peerasub (Ext. 1430)
Email: suttatip.p@kimeng.co.th

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