GMM Grammy (GRAMMY) reported
impressive 4Q02 earnings of Bt219mn, 16.5% higher than our
forecast. Music sales, which accounted for more than half of
GRAMMY's total income, surged 51% qoq and 28% yoy, aided by
the success of the latest Thongchai McIntyre (Bird) album.
TV production income was
boosted by the pick-up in ad spending. Meanwhile GRAMMY's
fledgling movie business contributed sales of about Bt50mn
from Mekong Full Moon Party. The Taiwan business
produced more disappointment, however, with a loss of Bt20mn
in the final quarter.
Full-year net profit jumped
232% to Bt664mn on the back of a 21% rise in music sales
following GRAMMY's price cuts on CDs and VCDs in August
2001. Earnings were also driven by a strong performance from
the radio division due to a 20% increase in radio ad
spending and a full contribution from FM. 94.0, which was
launched in June 2001. Gross margins widened from 40.5% in
2001 to 49.1% as GRAMMY saved on production costs after it
began producing more of its own CDs and VCDs in-house from
May 2002.
GRAMMY generated operating
cash flow of Bt969mn or Bt1.93/share. The company also
announced it would pay a dividend of Bt1.50/share in
addition to the Bt0.50/share interim dividend for 1H02
operations. The total 2002 dividend of Bt2/share, therefore,
represents a very generous yield of 9.9%.
We remain bullish on GRAMMY's
prospects for further growth in music sales following the
rebound in consumer spending and the government's sustained
crackdown against copyright pirates. Earnings should be
bolstered this year by the closure of the loss-making Taiwan
unit and a sharp rise in movie income.
We will wait until an analyst
meeting this afternoon before making any revisions to our
2003 forecast. As GRAMMY is trading on an inexpensive 2003
PER of 13.8x and is 22% below our fair value price of Bt26,
we maintain our BUY rating on the stock.
GRAMMY 4Q02
results
