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Workpoint Entertainment

Digital TV income target too optimistic

Workpoint Entertainment Plc

Investment thesis

Following the analyst meeting, we have diminished expectations for FY14 earnings tied to TV productions for ensconced broadcasters ("free TV"). We have not yet factored the digital terrestrial TV channel into our model, due to the uncertainty surrounding audience share and revenue. Regardless, WORK is our preferred Media pick for its strong content, which gives it an edge over all the other new-entrant TV broadcasters. We have cut our rating from BUY to TRADING BUY with a target price of Bt31.

4Q13 results recap—62% below estimate

WORK reported a Bt27m net profit for 4Q13, down by 46% YoY and 76% QoQ. The result undershot our estimate by 62%, due to a lower top-line and heavier OPEX and SG&A expenses than expected. The deterioration was led by the consumption slowdown, which has been exacerbated by the unfavorable political climate.

FY14 top-line guidance of Bt2.8bn

Management guides for an FY14 top-line of Bt2.8bn—up 29% YoY—which will comprise free TV (Bt1.3bn, down 12% YoY), digital TV and two satellite TV channels (Bt1bn, up 314% YoY), events & concerts (Bt450m, up 35% YoY) and others (Bt50m, down 53% YoY). WORK also guides for NM of 10-11% in FY14.

The digital revenue guidance in FY14—too optimistic

The firm anticipates Bt1bn in digital revenue (including two satellite TV channels) in FY14 (about a 1.5percent share of estimated 2014 TV ad spend), Bt600m in OPEX for digital TV (74% of which is production costs) and Bt90m in CAPEX for digital TV (50% of which is imported contents, the remainder being broadcasting equipment).

WORK targets a digital ad rate range of Bt20-30k/min in the first year of operations. Digital TV revenue will rise at a CAGR of 35%, FY15-17, and a CAGR of 13%, FY18-20, according to WORK. It claims to have already secured 50-60% its digital TV advertising booking target for this year. We believe its targets are way too optimistic, given the consumption slowdown and much greater competition with the market entry of 24 commercial digital channels. We assume only Bt540m in digital TV and satellite TV revenues for FY14. WORK's strategy is to simulcast satellite TV content on the digital TV channel, starting April, then eventually demand higher ad rates and shut down the Workpoint TV satellite channel.

FY14 earnings projection slashed 34%

We have cut our FY14 net profit forecast by 34% to Bt275m to reflect diminished expectations for top-line growth this year. Our FY14 revenue assumption falls 14% to Bt2.4bn, led by a lower expectation for free TV income (from Bt1.8bn to Bt1.4bn). As such, our target price drops 17% to Bt31.




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