Workpoint Entertainment

Workpoint Entertainment Plc (WORK)
Above estimate: WORK reported a Bt77m net profit for 1Q12, up a robust 40% YoY and 163% QoQ. The result was 18% above our estimate, thanks to better-than-expected OPEX control. Revenue was in line with our model. Gross profit was 5% above our estimate on lower programming & production costs than assumed.
Results highlights: The QoQ net profit jump was attributable to the post-flooding ad spend recovery. The YoY earnings rise was driven by: 1) a higher TV loading factor and the 7-10% ad rate increases for six TV shows, 2) new income from a satellite TV channel, 3) higher events revenue and 4) lower service costs related to movies and post-production. TV ad revenue grew by 11% YoY and 33% QoQ, due to a higher TV loading factor (80% against 71% in 1Q11 and 65% in 4Q11) and income from a satellite TV channel which started airing on Feb 20, 2012 and swiftly attracted a significant viewership. 
Movie revenue dropped by 80% YoY and 83% QoQ, because of lower movie income in 1Q12. Panya Renoo 2 grossed only Bt12m at the 1Q12 box office, while Teng Nong Jee Won Bin grossed Bt65m in 1Q11 and 30+ Sod on Sale earned Bt70m in 4Q11. There were no concerts or stage shows in 1Q12. GM jumped to 50% (from 44% in both 1Q11 and 4Q11). Only TV posted a gross profit rise (up 18% YoY).
Outlook: We expect 2Q12 net profit to drop by 20-25% YoY, due to the high 2Q11 net profit base comparison. WORK managed two major events in 2Q11—Acheewa project (Bt100m) and Thailand’s Got Talent (the remaining Bt40m in the quarter). In 2Q12, there will be only one major event—Thailand’s Got Talent Season 2. However, we estimate a 40-45% QoQ jump because of seasonality.
What’s changed? We have upgraded our FY12 earnings forecast by 10% to Bt410m, due to the greater-than-modeled 1Q12 net profit. Hence, our PER-pegged YE12 target pride rises 15% to Bt22.50.
Recommendation: WORK is now clearly overvalued—an FY12 PER of 20x.  As such, we have downgraded our rating from BUY to SELL.