Workpoint Entertainment

Workpoint Entertainment Plc (WORK)

Investment thesis
Despite diminished earnings expectations for 4Q13 and FY13, due to the domestic consumption slowdown and the ongoing political conflict, we still rate WORK a BUY and our top pick in Media space, as it has the most scope for upside from winning a digital channel license.
Diminished top-line expectations for 4Q13 and FY13
The firm has cut its FY13 top-line target by 8% to Bt2.3bn to factor in slowing domestic consumption and the unfavorable political climate in 4Q13. The two factors will negatively impact its revenues for events, free TV/satellite TV and concerts/stage plays in 4Q13. WORK has revised down its FY13 income guidance for free TV (excl. satellite TV) by 6% to Bt1.6bn, for satellite TV by 14% to Bt240m, for events by 13% to Bt350m and for concerts/stage plays by 28% to Bt18m. For satellite TV, it has slashed its FY13 revenue target for its new channel, Channel 6, by 40% to Bt30m and for its existing channel Channel 7 by 9% to Bt210m.
The diminished expectation for 4Q13 event revenue reflects several govt projects being postponed to FY14. Only three new events—Krabue Thai, Siam Street Festival and one govt project—will be organized in 4Q13. One concert, Three Cha Carniwow, has been rescheduled to 1Q14.
Satellite TV operations to post shallower losses for 4Q13-FY14
The firm targets gross losses for its satellite TV operation of about Bt130m for FY13 and Bt30m for 4Q13 (52% QoQ shallower). The shallower expected QoQ gross loss for 4Q13 is attributable to lower outsourced production costs. We estimate a shallower YoY loss for satellite TV operations in FY14, led by 30% ad rate increases for Channel 7, effective Jan 2014, and significant cost reductions at Channel 6 with the implementation of a new business model. The firm plans to convert Channel 6 into a home shopping channel and expects it to post profits as soon as it starts operating, due to the absence of content amortization expenses.  
Earnings projection for 4Q13 revised down
We now forecast a Bt70m net profit for 4Q13, up 26% YoY but down 37% QoQ, which is lower than our previous Bt90m projection. The expected QoQ dive is due to a seasonal rise in SG&A expenses and the impact of the ongoing political conflict. The YoY growth is thanks to the low 4Q12 profit base (when hefty director benefits were paid). 
FY13 earnings forecast cut 7%
We have trimmed our FY13 net profit projection by 7% to Bt300m to factor in the 5% top-line forecast downgrade to Bt2.3bn. However, our FY14 revenue and earnings projections stand unchanged, as does our YE14 target price of Bt37.50.