An expected boom in Thai advertising spending as elections approach has sparked a spate of "buy" recommendations for BEC World, Thailand's most popular free television operator.

Most fund managers are overweight BEC, seen as a defensive stock with a strong financial position because of its advertising revenue.

The outlook for United Broadcasting Corp (UBC), the country's only pay-television operator, is more varied.

Some analysts have "hold" recommendations on UBC as the firm has no advertising revenue, but others rate the stock a "buy" given its price and potential from interactive television.

Douglas Cairns, Chief investment officer at Nakornthon Schroder Asset Management said his fund was overweight on both stocks and argued UBC was undervalued.

"We have an overweight on UBC, basically on a price basisB as the stock valuation is discounted," he said. "We have estimated fair value for UBC at 33 baht." UBC stock was trading at around 18.5 baht on Wednesday.

Thai advertising spending is expected to grow more than 20percent this year to around 42 billion baht ($1 billion), of which around 25 billion will be spent on television.

James Mitchell of Goldman Sachs in Hong Kong said he estimated Thailand's net television advertising spending market at around 11.3 billion baht or $300 million in 2000. "BEC should report revenues of over four billion baht this year, and claim around 35 percent of the TV market. Election spending should sustain revenue momentum," Mitchell said.

Thailand's next general election must be called by November. Pornrat Janejarassakul, senior analyst at HSBC Securities,said revenue growth at BEC should outperform the industry as the company gained more market share over recent quarters. Cash rich and debt-free, BEC is the only listed free television operator in Thailand.

Strong advertising demand is reflected by BEC's decision to increase advertising rates by eight to 20 percent from October on top of a 10 per cent increase for Prime-time rates in March.

Thai television is regulated by authorities with a mandated maximum advertising time of 12.5 minutes per hour. Limited advertising space means prices go up as demand increases.

Brokerage analysts argue both BEC and UBC are cheap. "BEC is trading on a 2000/01 annualised EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation) of 12 Times...cheap compared to TVB of Hong Kong, which trades at 18 Times," SG Asia Securities said in a report. Mitchell said BEC was at 25 Times his 2001 earnings per share (EPS) forecast and 15 Times his 2001 adjusted EBITDA forecast. He said UBC was inexpensive on a discount cash flow basis at31 baht per share. "UBC is trading at $800 EV/subscriber versus I-Cable, which is trading at $2,000 EV/subscriber."

Several catalysts for UBC shares
Mitchell said he expected several potential growth catalysts for UBC shares over the next 12 months, including progress towards profitability, deployment of interactive television and subscriber growth acceleration."Subscriber growth in the fourth quarter of 2000 should be higher due to Sports and holidays," he said.

Mitchell said he had revised down his forecast losses for UBC after the company reported healthy second-quarter results.

"As a result our forecast losses shrink five percent to1.87 billion baht for 2000 and 15 percent to 400 million for 2001. We expect free cash and earnings to move into positive territory in late 2001 or early 2002," he said.