Workpoint Entertainment

Workpoint Entertainment Plc (WORK) 

Investment thesis

Expectations of weak 4Q14 results present an opportunity to accumulate the stock ahead of a quarterly earnings uptrend through FY15. We are now more upbeat about the prospects for WORK’s terrestrial digital TV operation, Workpoint Creative TV (WCTV). WCTV’s overall rating and audience share in Jan were higher than we had earlier expected. Due to a stronger long-term outlook for WCTV and expected cost-savings, we have upped our FY15-28 earnings forecasts for the digital TV business.  

As such, our consolidated earnings projections rise by 12% for FY15 to Bt288m and by 7% for FY16 to Bt392m. Hence, we have increased our YE15 target price from Bt60 to Bt80. BUY! Note that we use the DCF method to value the digital TV business.

4Q14 insights—QoQ and YoY earnings drop 

We estimate a Bt15m net profit for 4Q14, down by 45% QoQ and 44% YoY. The assumed QoQ profit drop is attributable to heavier personnel expenses and spending on producing new programs to launch in FY15. The expected YoY profit drop was led by heavier OPEX, which would have outweighed the effect of higher TV revenue. We expect revenue from the digital TV business of Bt220m for 4Q14, up from Bt181m in 3Q14. The digital TV unit should report a gross profit for the quarter. Service costs rose by 28% YoY and 18% QoQ, according to our model. SG&A expenses probably increased by 62% YoY and 32% QoQ. 

Bullish on digital TV business 

WCTV’s overall rating (for all 15+, all country, 18 hours) increased significantly to 0.72 in Jan (from 0.50 in Dec). Its audience share was 7.6% in Jan (against 5.2% in Dec). The rating jump was led by the launch of new TV shows and the migration of WORK TV shows that previously aired on CH5 and CH9 to WCTV. Note that WCTV’s rating is now higher than its earlier YE15 target at 0.6. As such, we have upped our FY15 digital TV revenue assumption to Bt2.1bn from Bt1.8bn previously. 

Our current mean digital TV ad rate assumption is now Bt35k/min for FY15 (our previous FY15 assumption was Bt33k/min), based on a rating of 0.7 and a cost-per-rating point (CPRP) of Bt25k/30 seconds. We assume a mean TVC utilization rate of 82% for FY15 (up from 51% for FY14). There would be scope for upside to our revenue forecast if WCTV’s viewership rating were to beat our assumption.

New studios to help reduce costs

WORK is currently building six new studios, which should all be ready for use by August 2015 (the CAPEX budget is Bt150m). As the firm already has nine studios, by August it will have a total of 15. The new studios will cut production costs by sharply reducing the need to assemble and dismantle sets when shows are shot (the new capacity will allow sets to be kept in place between scheduled shooting dates), according to the firm.