Workpoint Entertainment

Investment thesis 

WORK’s expected 3Q14 earnings jump will be followed by even stronger 4Q14 numbers. Furthermore, we are now much more bullish about the FY15 outlook for its terrestrial digital TV operation—Workpoint Creative TV’s (WCTV, Channel 23) audience share and ad rates have increased significantly since April. The station now ranks third in audience share behind only CH7 and CH3. As such, we have upped our FY15 earnings forecast by 38% to Bt219m on greater expectations for both ad and utilization rates for WCTV. That justifies a BUY call (upgraded from HOLD) and a higher YE15 target price of Bt44 (previously Bt34.25).

3Q14 insights—QoQ earnings jump 

We estimate a Bt35m net profit for 3Q14, up 155% QoQ but down 71% YoY. The assumed YoY profit drop is attributable to heavier OPEX, which would have outweighed the effect of higher TV revenue. The heavier OPEX was tied to TV production costs, license-related expenses, content amortization expenses and transponder fees for WCTV and greater marketing and staff costs. We estimate that service costs rose by 26% YoY and 4% QoQ. SG&A expenses probably increased 42% YoY (flat QoQ). 

The expected QoQ profit jump was led by TV revenue, especially from WCTV. We estimate that WCTV’s mean TVC slot utilization rate jumped from 25-35% in 2Q14 to 70-75% in 3Q14 in tandem with its ratings. Also, WORK recognized the remaining Bt80m fee from Expo Milano 2015. We estimate that WCTV’s revenue shot up 64% QoQ to Bt150m, as high audience ratings enabled ad rate increases and prompted advertisers to book more TVC slots. Note that there was no movie or concert/stage show income in 3Q14.

2H14 earnings to recover HoH 

Our model indicates a 2H14 net profit of Bt77m, up 568% HoH (but down 45% YoY), led by greater TV revenue from the broadcasting of two very popular TV dramas on WCTV—Office Syndrome The Series and The Show Must Go Die—and the Women's World Volleyball Championship in 4Q14. Events revenue will add to the bottom-line and we expect consumption spending to start recovering in 4Q14. 

FY15-16 earnings forecasts revised up

WCTV has proved its popularity and its power, starting out in the top-four in viewership in April and shifting into third place in October. Because WORK’s digital TV business has proved itself, we have increased our earnings forecasts by 38% to Bt219m for FY15 and by 27% to Bt358m for FY16, premised on 1) greater ad rates—our mean ad rate assumptions rise to Bt38k/min for FY15 and Bt55/min for FY16, from Bt35k/min and Bt42k/min, respectively—and 2) higher TVC utilization rates (we expect 75% for FY15 and 80% for FY16).