Workpoint Entertainment

Investment thesis

Yesterday, WORK announced a capital increase through a Private Placement (PP). The cash call will strengthen WORK’s financial position, we believe. Despite the 3Q14 earnings disappointment, we remain optimistic about the prospects for the firm’s terrestrial digital TV operation—Workpoint Creative TV’s (WCTV, Channel 23) audience share and ad rates have increased significantly since April. As such, earnings should rise in 4Q14 and throughout next year. Our BUY rating stands with a slightly lower YE15 target price of Bt43 (Bt44 previously), due to the dilution effect caused by the capital increase.

Results recap—below our estimate

WORK reported a Bt27m net profit for 3Q14, up 115% QoQ but down 76% YoY. The result was 16% below our estimate, due to lower event revenue and higher SG&A expenses than modeled. Event revenue was 12% short of our estimate. SG&A expenses were 6% above our model. But we maintain our FY14 profit forecast unchanged at Bt88m. The 9M14 number represents 44% of our full-year projection.

The QoQ profit jump was attributable to greater TV revenue and a fatter GM (due to a cost-saving program). The YoY earnings tumble was led by heavier OPEX, SG&A and interest expenses, which outweighed the effect of an increased revenue and a lower effective corporate tax rate. TV revenue rose by 20% YoY and 29% QoQ, due to increased viewership, which enabled higher ad rates. 

4Q14 earnings to rise both QoQ and YoY

We expect a Bt50m net profit for 4Q14, up by 84% QoQ (seasonality) and 85% YoY (due to the low base set by 4Q13), led by greater TV revenue from the broadcasting of two popular TV dramas on WCTV—Office Syndrome The Series and The Show Must Go Die—and the Women's World Volleyball Championship in 4Q14. 

Capital increase details

Yesterday, WORK announced that it would increase paid-up capital by 32m shares (par value of Bt1/share) through a PP at Bt33.5/share to Mindo Asia Investment Ltd, an investment company domiciled in Hong Kong. Registered capital will increase from Bt266m currently to Bt298m in FY15. WORK plans to use the Bt1.07bn in proceeds for business expansion. 

The firm’s equity base will jump from Bt1.8bn at end-Sept 2014 to Bt3.0bn at YE15. Hence, the debt-to-equity ratio should fall from 0.5x at end-Sept 2014 to 0.2x at YE15.