RS

Above our estimate

RS reported a record 3Q14 net profit of Bt262m, up by 111% YoY and 264% QoQ. Earnings were 38% above our estimate, due to a 16% lower-than-expected cost of sales. 

Results highlights

The YoY and QoQ net profit rise was driven by the NBTC’s Bt270m compensation payment for the 2014 FIFA World Cup broadcasts and the absence of an impairment on La Liga broadcast rights  (against an impairment of Bt41m in 2Q14). GM was 46.2% in 3Q14 against 39.6% in 3Q13 and 28.7% in 2Q14.

The 3Q14 top-line jumped 37% YoY but declined 8% QoQ. The YoY revenue jump was led by World Cup compensation (income from the media business rose 88% YoY but declined 5% QoQ), The QoQ drop was driven by a 27% dive in music income—lower production and sales of CDs/DVDs. The showbiz unit posted an income plunge of 57% YoY and 25% QoQ, as public events were postponed and no big concerts were held during the quarter. 

Outlook

Although the absence of a World Cup compensation payment will make for weaker QoQ earnings in 4Q14, we expect YoY net profit growth, led by greater revenue at the digital terrestrial TV business. Note that revenue from Channel 8 shot up 52% QoQ to Bt228m in 3Q14 and we expect to increase further in 4Q14, led by a higher ad rate (its ad rate rose to Bt12k/minute in 4Q14). Moreover, there was a D2B concert on Nov 2 and the biggest folk music event of the year, Luk Thung Festival Season 4, will be held in Dec which will boost the showbiz unit’s income. Our 4Q14 earnings forecast is now Bt114m, up 24% YoY but down 57% QoQ. 

What’s changed?

We have upgraded our net earnings forecast by 19% to Bt443m for FY14 (mainly due to an expanded net profit for 3Q14). 9M14 net profit represents 74% of our new full-year projection.

Recommendation

Our BUY rating stands, premised on profit growth for RS’s terrestrial digital TV operation, which has proved sustained top-five viewership and has increased its ad rates.