TRIS Rating has assigned the company rating of Nation Multimedia Group PLC (NMG) at “BBB+” with “positive” outlook. The rating reflects the company’s established brand equity as a multimedia news content provider, the strong market positions of the company’s newspapers, ‘Krungthep Turakij’, ‘The Nation’, and ‘Kom Chad Luek’, as well as the competency of its management team. The rating also takes into consideration the growth prospects driven by NMG's opportunity to become a digital television (TV) broadcaster. However, these strengths are partially offset by the operational challenges NMG faces in the newspaper publishing segment, including a slowdown in advertising spending and falling circulation trend in the newspaper segment, plus the risk surrounding its entry into digital TV broadcasting. The “positive” outlook is based on the growth prospects in the digital TV broadcasting segment. The rating should be upgraded if NMG can successfully move to the new digital TV platform, deliver strong performance amid intensified competition, and maintain its financial strength. The outlook would be revised to “stable” if the commercial benefits of digital TV take longer to materialize.
NMG, widely-known and recognized as the Nation Group, is a leading multimedia company in Thailand. As of December 2013, NMG’s major shareholders were Mr. Suthichai Sae-Yoon, holding a 9.20% stake, and Mr. Sermsin Samalapa (9.08%). NMG’s lines of business include publishing, broadcasting, edutainment, education, printing, and logistics. In 2013, NMG reported total sales of Bt2,864 million. The publishing and the broadcasting segments are the main revenue generators, contributing 59% and 26% of total sales in 2013. The remaining business segments support NMG’s core operations.
Revenue in the publishing segment is mainly from advertising and the circulation of three daily newspapers. Krungthep Turakij is a daily business newspaper, The Nation is an English-language daily newspaper, and Kom Chad Luek is a mass market daily newspaper. In 2013, advertising revenue from the publishing segment accounted for 43% of NMG’s total sales, while circulation revenue was 15% of total sales. The proportion of revenue from the publishing segment, as a percentage of total sales, has declined steadily over the past five years. Revenue in the publishing segment was Bt1,958 million in 2008 or 72% of total revenue, falling to Bt1,686 million or 59% of total revenue in 2013. The drop reflects the declining attractiveness of print newspapers, compared with free to air TV and new media. The growth prospects for print newspapers are considered limited, mirroring the worldwide slide in the newspaper publishing industry. The popularity of the Internet and online communication methods such as social networks has limited the growth opportunities for conventional print media. However, TRIS Rating expects that NMG will be able to maintain its competitive position in Thailand’s publishing industry.
Revenue in the broadcasting segment, in contrast, has increased over the past five years. The portion of total revenue obtained from broadcasting rose from 15% of NMG’s total sales in 2008 to 26% in 2013, or a climb from Bt397 million to Bt751 million. While the mature newspaper business provides a base of cash flow, the broadcasting segment is expected to be a key driver of the Nation Group’s future prospects. At the end of 2013, NMG and its subsidiaries won the auction of two digital TV licenses: a standard variety (SD) channel and a news channel. TRIS Rating expects that the shift from the satellite TV platform to a free to air TV platform will help the broadcasting segment grow considerably from the present level. By offering a free to air TV broadcast, NMG will be able to access a much larger market than its current satellite TV platform. Advertising expenditures on free to air TV are about 7 times larger than advertising expenditures on the satellite TV platform and 4 times bigger than advertising expenditures in the publishing industry. However, competition in the broadcasting industry is expected to be intensified as the digital TV platform will include 24 commercial channels from the auction plus an additional 24 public channels, compared with six existing channels today. TRIS Rating believes that NMG will be able to compete in the free to air TV market, considering its strong ‘Nation Channel’ brand and its ability to produce quality news and knowledge content. The rise in broadcasting revenue will help reduce NMG’s dependency on the publishing segment and mitigate the downside risk of the publishing industry.
NMG’s current financial profile is average. NMG posted losses in the past but its performance has turned around since 2010. During the past four years, the operating margin, defined as operating profit before depreciation and amortization as a percentage of total sales, ranged between 14%-16%, compared with 2%-5% during 2005-2009. The improved operating margin reflects a recovery in advertising spending and NMG’s efforts to control costs. NMG's liquidity profile has strengthened as measured by rises in the EBITDA (Earnings before interest, tax, depreciation, and amortization) interest coverage ratio and the FFO to total debt ratio.
In mid-2013, the Nation Group raised equity capital through rights offerings by three listed entities, NMG, Nation Broadcasting Corporation PLC (NBC), and Nation International Edutainment PLC (NINE). The group received Bt2,137 million in total from the capital increase. The proceeds have been earmarked for the digital TV auction and the capital expenditures required to launch the free to air TV platform. Meanwhile, NMG used some of the proceeds to repay some short-term debts. As a result, the debt to capitalization ratio fell from 45.9% at the end of 2012 to 13.3% at the end of 2013.
NMG obtained two digital TV licenses at a bid price of Bt3,538 million. According to the regulations of the National Broadcasting and Telecommunication Commission (NBTC), the digital TV license auction price will be paid in six annual installments. Therefore, the license payments are not expected to be a significant financial burden. NMG plans to spend Bt200-500 million in capital per annum over the next three years to support its entry into digital TV broadcasting. Combining the annual license payments and the necessary investments, NMG will have a financial outlay of Bt800-Bt1,000 million per annum between 2014 and 2016. Under TRIS Rating’s base case scenario, NMG is expected to generate funds from operations of at least Bt500 million per annum during 2014-2016. With its operating cash flow plus the liquidity reserve, the planned expenditures will be manageable. No substantial rise in leverage is anticipated in the short term.
Advertising has been and continues to be the largest source of NMG’s revenue. Generally, advertising spending for all media will move in tandem with economic conditions. Advertising spending on free to air TV has grown steadily over the past five years, rising at a compound annual growth rate (CAGR) of 6.3%. However, advertising spending in the publishing segment is more volatile and has not grown during the past five years. The new free to air digital TV platform is expected to significantly enhance NMG’s advertising revenue base. Considering the maturing state of Thai newspaper publishing industry, NMG’s revenue base will shift from publishing to broadcasting within the next few years if the entry into digital TV broadcasting is executed successfully.
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