• Expect MONO to book Bt63m profit in 2Q18F (+22% yoy, +224% qoq) led by higher ad rates at digital TV unit
• Cut FY18-20F profit by 27-39% after reducing utilization, subscription sales, and number of t-moment movies
• NEUTRAL, revised down TP to Bt2.6 (from Bt3.6); challenging for Monomaxxx to offset falling demand for MVAS

Ad rate improved from low base, subscription sales still weak

We expect MONO to book 2Q18 net profit of Bt63m, up 22% yoy and 224% qoq. TV revenue should grow 23% yoy and 21% qoq to Bt529m driven by higher ad rate of Bt38k (vs Bt27k in 2Q17, Bt35k in 1Q18). Utilization should drop 12ppt yoy to 85% due to weak ADEX, but increase 10ppt qoq amid higher season for media. MONO’s rating improved 16% yoy to 1.04 in 2Q18 due to its strong positioning in movie content, but fell 3% qoq amid intense competition and World Cup content starting mid-June. Subscription service revenue should continue to drop, by 40% yoy and 2% qoq to Bt117m, as weak demand for SMS and other rich content would outweigh a growing video streaming service. Sponsorship, movie and other revenue led by exclusive concerts and basketball leagues, should inch up 5% qoq to Bt48m (flat yoy). GPM should improve 2ppt yoy to 34% due to operating leverage at digital TV unit.    

Weaker outlook for digital TV, subscription and movie units  

We cut FY18-20F profit by 27-39% after imputing weaker sales at digital TV, subscription and movie units. We maintain rating at 1.1 (vs 1.06 in 1H18 and 1.2 guidance) but reduced utilization to 78-80% from 88% on tighter competition and weaker ADEX. Rating and CPRP could be hurt by the Asian Games which will start mid-August. We revised down subscription sales by 12-21% to reflect weaker outlook for Monomaxxx. Active subscribers and ARPU in July would be similar to May at 120k and Bt129 vs management’s target of 145k and Bt200 for FY18. We revised down movie revenue to Bt121m (from Bt161m) to reflect lower sales from two t-moment movies vs four previously. MONO launched new TV shopping content (mainly home and lifestyle products) via TV and online platforms at end-June which still in their infancy. They also plan to introduce new content (e.g. premium Hollywood and local production series) on the subscription platform in 3Q18.

Wait for positive developments from boost at Monomaxxx

Our revised Bt2.6/sh TP is based on DCF valuation. We remain skeptical of MONO’s strategy to boost Monomaxxx sales to offset falling demand for MVAS services. We like their strategy to employ technology and creative content but prefer to wait for positive developments in the subscription video streaming platform before increasing exposure in MONO.