Workpoint Entertainment

Workpoint Entertainment Plc (WORK)
Investment thesis
WORK’s share price has rallied 20% 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.