GMM Grammy

Investment thesis

We have upgraded our GRAMMY rating from HOLD to BUY with a new YE15 target price of Bt20.60, up from Bt17.30, premised on greater optimism over the FY15 bottom-line outlook and value creation from its digital TV business (which underpins its long-term growth story). Concerns about heavy digital TV-related OPEX in the initial launch phase have already been priced in, we believe. Among listed digital content operators, GRAMMY is currently our long-term top pick, due to its breadth of content variety and its position as the biggest fully-integrated player in the Thai entertainment industry.  

Superior content sets scene for digital TV super-stardom  

GRAMMY is Thailand’s biggest fully-integrated content operator. It has the greatest music and media content library in Thailand and has vast potential to produce further high quality content from its deep resources of artistic and technical talent. The firm’s program content quality is proven by the high viewership and ad rates of its programming on analog channels. GRAMMY’s mean ad rates rank in the top-three of the drama and variety categories. As such, we believe the firm will be a leading digital terrestrial TV broadcaster. It aims to rank in the top three with BEC and Channel 7. 

Home shopping—a rising star

Since debuting in 2012, the home shopping business has grown to the point where it now has over 320k customers and average daily sales of Bt3m. We forecast home shopping sales of Bt1.1bn for FY14, up 95% YoY, and Bt1.3bn for FY15, up 18% YoY. The home shopping bottom-line should break even in 4Q14 and we model for a Bt130m net profit in FY15 (assuming the NM of 10%). There may be scope for upside from additional revenue and a wider audience from product tie-ins and other below-the-line activities with up to other digital terrestrial TV channels.

A much shallower loss in FY15; a major turnaround in FY16  

Our model indicates shallower losses, starting 2H14, thanks to the divestment of the pay-TV subscription business. We now forecast GRAMMY’s FY14 consolidated net loss at Bt2.48bn, shallower by 4% from our previous number, led by a shallower digital TV net loss forecast than assumed. Moreover, we have revised our FY15 net loss projection shallower by 53% (to a Bt311m loss), due to an expanded expectation for its home shopping business. 

Note that an FY15 much shallower loss of 88% from FY14 net loss is mainly due to the full-year impact of the divestment of the pay-TV operation. We expect a turnaround to a Bt372m net profit for FY16, underpinned by black ink on the bottom-line of the digital TV unit.