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Workpoint Entertainment

Bualuang Securities

Workpoint Entertainment Plc (WORK)

Investment thesis

WORK's share price has rallied 20percent since early June, factoring in the

incremental value of the digital TV business, we believe. The firm will report

a net loss for 2Q14, but we expect 2H14 earnings to recover HoH, driven

by revenues from events, sponsorships, and ad rate increases. Although

we are confident in the long-term outlook for WORK's digital TV

broadcasting operation, in FY14-15 its bottom-line will be squeezed by

heavy start-up costs for the channel. Our HOLD rating stands with an

upgraded YE14 target price of Bt31 (including digital TV of Bt10.80/share)

2Q14 revisited—net loss expected; 2H14 earnings to recover HoH

We now expect a Bt10m net loss for 2Q14, against a Bt85m net profit for

2Q13 (and deeper in the red QoQ from the Bt1m net loss posted for 1Q14).

Although we anticipate a higher satellite TV ad rate, heavy OPEX and

CAPEX for the digital terrestrial TV business and the revenue recognition

delay for the Milan World Expo contract into 3Q14 will hit the posted 2Q14

bottom-line. That said, our model indicates a 2H14 net profit of Bt99m, a

turnaround from an Bt11m net loss in 1H14 (but down 29% YoY). The

realization of events revenue will add to the bottom-line and stronger

consumption spending should boost ad revenue HoH.

Free TV ad rate and audience share deterioration

The new digital TV channel launches coincide with a period of weak

consumption spending and ad budget-cutting. Since the digital terrestrial

TV broadcast trials began, Nielsen reported a 6% drop in ratings for free-toair

terrestrial TV channels. As such, we have cut our WORK FY14 (exsatellite

& digital terrestrial TV channels) free TV revenue forecast 16% to

Bt1,076m (in line with management guidance of Bt1,050m). Also, we are

bearish about the long-term prospects for free-to-view satellite TV, given

the intensifying competition for audience share and advertising.

Digital terrestrial TV business factored into our model

Including the digital TV business, we forecast that WORK's FY14 net profit

will dive 66% YoY to Bt88m. For the digital TV operation, we assume net

losses of Bt58m in FY14 and Bt10m in FY15, then a net profit of Bt96m in

FY16. Over the long-term, our model indicates a digital TV business profit

CAGR of 17.2%, FY16-28. Our mean ad rate assumptions are Bt18k/min

for FY14, Bt33/min for FY15 and Bt64k/min for FY18. We derived

Bt10.80/share of incremental value for the digital TV business model, using

the DCF method.

Outstanding play on digital terrestrial TV business

WORK has a range of popular variety shows and regularly launches new

programs. Its strong content should support the performance of its new

digital TV channel going forward. There is also scope for upside from the

firm migrating some of its popular shows that currently air on longestablished

broadcasters to Workpoint Creative TV and for digital TVC slot

ad rate increases in tandem with higher audience ratings.


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