Following the analyst meeting, we see downside risk to the FY14 profit models of the consensus and ourselves, due to heavy digital TV OPEX in 2H14. On the positive side, WORK claims a higher mean audience rating and increased the ad rates for its simulcast satellite-terrestrial TV channel during April-May; it remains to be seen whether the rating and ad rates will be sustained over the long-term. Our HOLD rating stands.
FY14 top-line guidance revised down
WORK has cut its FY14 top-line target 18% to Bt2.3bn, which reflects the industry-wide dive in ad spending in 1H14. Disaggregated by business unit, the firm has slashed its free TV income target by 19% to Bt1.05bn and its digital-terrestrial TV broadcasting revenue guidance by 28% to Bt720m.
In contrast, WORK has upgraded its events & concerts income target 28% to Bt575m to factor in receipts from a state agency contract to manage the Thai pavilion at the Milan World Expo (Bt375m in total; 44% in FY14, 56% in FY15). It has so far secured Bt350m in events contracts to be paid this year. The firm terminated three free-to-air TV shows in 2Q14—Aroka Party and Chao Choo Prathu Din (in May) and Cupcake sitcom (in June). The firm targets a net margin of 9%.
Downside risk to our FY14 forecasts
Following WORK’s release of its 1Q14 results, we cut our FY14 top-line forecast 18% to Bt2.32bn. Also, our net margin assumption of 8.5% is more conservative than the firm’s guidance. Nevertheless, there remains further downside risk to our FY14-15 models tied to the operational performance of the terrestrial digital TV station.
Digital TV ad rates increased 75%
WORK has upped its mean satellite-terrestrial ad rate from Bt10k/min to Bt18k/min, due to an improved mean viewership rating—from 0.1 in Jan to 0.2-0.3 in April and May (note that a rating of 1 = 1.2m households; a rating of 0.2 = 240k households; Channel 3’s rating is 2.5). It targets ratings of 0.5 by YE14 and 0.8 by YE18. The firm guides for terrestrial digital TV operational break-even (not bottom-line break-even) in FY14. For the terrestrial TV channel, we assume net losses of Bt79m in FY14 and Bt28m in FY15, then a net profit of Bt20m in FY16. Our mean ad rate assumptions are Bt20k/min for FY14, Bt33/min for FY15 and Bt53k/min for FY18.
2Q14 bottom-line forecast revised up
We now expect a Bt20m net profit for 2Q14, down 77% YoY but a QoQ turnaround from Bt1m net loss in 1Q14 (we previously anticipated a Bt10m net loss). Our revision was prompted by higher ad rates, lower OPEX and production cost assumptions (with the termination of loss-making TV shows) and receipts tied to the Milan World Expo contract.