Earnings forecast slashed after poor 4Q02 results

We've revised down our 2003 earnings forecast for Traffic Corner Holdings (TRAF) by 56% after its poor performance in 4Q02 and business restructuring this year. TRAF reported a Bt23mn loss in 4Q02 (versus a net profit of Bt21mn in the previous quarter) due to one-time expenses and pre-operating costs. Despite our downgrade, TRAF's earnings are projected to grow 90% this year as the company launches new businesses in 1H03.

TRAF's TV operations should see an improved performance this year due to programme restructuring. Meanwhile radio income will be boosted by a 20% ad rate hike for the company’s flagship station, F.M.95.0, as well as TRAF's launch of an additional radio station at F.M. 90.0 in January. TRAF's event marketing business, particularly international concerts, faces a slowdown, however, due to the Iraq crisis and other geopolitical tensions.

We expect TRAF's sale to grow 38% this year to Bt651mn with net profit nearly doubling to Bt57mn (versus our previous forecast of Bt130mn). Based on a PER of 17x and assuming full conversion of TRAF-W1, we estimate the stock's fair value at Bt3.26. As the stock is now very close to our target price, we are maintaining our HOLD rating on TRAF.

TRAF earnings summary

Source : Kim Eng Research

• TRAF has started to restructure its TV operations by replacing non-prime time programmes with prime-time game shows. The poorly-performing C-square concerts, which are broadcast on Sunday on Channel 9, will be scrapped at the end of this month. Instead TRAF will launch two game shows next month at prime-time slots on Channel 5, with ad rates of Bt240,000/minute. TRAF also produces a popular programme featuring live English Premier League soccer matches which is broadcast on Channel 9 on Saturday nights. TV sales are expected to remain weak in 1Q03 but are expected to recover in the April-June period after the programme restructuring.

• TRAF currently operates three radio station: FM. 95.0, FM. 90.0 and FM.107.0. Its flagship station, FM.95.0 Luek Thung FM contributes 70% of radio income and will benefit from a recent 20% hike in ad rates to Bt2,500/per 30-second slot as well as higher utilisation due to growing popularity. Last month TRAF cancelled a contract to provide marketing management for FM.100.5 as the company didn't have the right to control programme formats. In January, however, TRAF launched a new radio station, FM.90.0 Datz, aimed at teenage audiences. Some of the pre-operation costs were booked in 4Q02. The new station has been well-received so far and is expected to break even in 2Q03. However, the overall performance of TRAF's radio business in 1Q03 will remain lacklustre.

• The Bangkok International Film Festival in January generated lower-than-expected profit of about Bt10mn. We expect TRAF's event marketing income this year to drop this year as the Iraq crisis and global terrorism alerts lead to a decline in the number of concerts by international artists. This year TRAF has plans to stage concerts by Dionne Warwick, Natalie Cole, Match Box 20 and Avril.

• Publishing income in 2003 should increase due to additional income from the monthly magazine, MTV Trax, and the tabloid newspaper, Bangkok Today as well as a full year of income from Maya Channel Newspaper following TRAF's recent investment in the Maya Channel Company. Management expects MTV Trax to break even this month and Bangkok Today, to reach break-even level in 2Q03.

• This month TRAF began to realise income from its 60%-owned subsidiary, Future Biz, which operate the group’s information technology and electronic media ventures. Tirat Co, one of Future Biz's four subsidiaries, has decided to postpone the launch of its pre-paid calling card operations for two months until May.

Source : Kim Eng Research