Ad rate increase (but factored in)
Following the analyst meeting, we feel more positive over RS's outlook. Channel 8 (its digital terrestrial TV channel) has higher viewership, thanks to the FIFA World Cup (RS increased Channel 8's TVC slot rates by 50% in June). RS plans to increase its TVC rates by 50-80% in 1Q15, but we had already factored that into our FY15 projection. As such, we maintain our FY15 earnings forecast at Bt318m. The scope for upside to the share price is limited. Our HOLD rating stands. RS currently trades at an FY15 PER of 25.5x, 1.3SD above its long-term mean and significantly higher than its peer average of 21.7x.
Good 3Q14 earnings from compensation revenue
RS expects total revenue from FIFA World Cup broadcasting license management (including NBTC compensation of Bt427m) of Bt900m, which would mean a net margin 20%. We expect a net profit of around Bt100m in 3Q14 from the FIFA World Cup project (RS realized a Bt70m net profit in 2Q14). Note that the firm booked 60% of its FIFA World Cup-related operating costs in 2Q14.
Our RS sunbox sales target (bundled with EPL) of 300k units looks achievable. Since sales commenced on August 11, subscribership rose from 2,000 to 4,000. We anticipate 3Q14 earnings of Bt122m, down 2% YoY but up 69% QoQ. Our FY14 bottom-line forecast remains Bt295m.
Ad rate increase …but already in our model
Nielsen's ratings of pay-TV channel viewership indicated that terrestrial Channel 8 (which is carried by all pay-TV operators under the NBTC's "must carry" rule) ranked fifth in July, up from sixth in June and ninth in May, thanks to the 2014 FIFA World Cup. RS announced in June that—effective November—its mean Channel 8 TVC slot rate would rise from Bt8k/minute to Bt12k/minute. Management plans to increase its mean Channel 8 advertising rate to 20k/min in 1Q15.
RS's digital terrestrial TV rating appears to be rising and its TVC slot rate is to increase. But the NBTC has yet to distribute analog-to-digital converter set-top box coupons (perhaps in Sept) and Nielsen won't start officially rating digital terrestrial TV channels till next year (the majority of households in Thailand watch terrestrial TV on the terrestrial platform, not via a pay-TV service). It remains to be seen whether RS will hold the same rank among broad TV viewers as among pay-TV subscribers.
We have already factored in Channel 8's higher advertising rate in FY15. Our FY15 model assumes a mean net average TVC rate of Bt22k for the digital terrestrial TV channel and a net profit of Bt318m for RS.