Workpoint Entertainment

Workpoint Entertainment Plc (WORK) 

 

What’s new? 

On June 23, 2015, the BOD approved the issuance of warrants (WORK-W1) not exceeding 20.86m units for existing shareholders at the ratio of 20 shares to one unit of warrant at no cost. The XW date is set for September 18, 2015. The company expects the warrants to be issued in September 2015. The exercise dates are set for the 25th of February, May, August and November, with the first in November 2015. The terms of warrants are four years from the date of issue. Moreover, the BOD approved the issuance of its Employee Stock Option Program (ESOP-2), not exceeding 14m units. The terms of the ESOP are four years from the issuance date. The exercise date is set on the last working date of every month under the following scheme—the first 30% of total ESOP units are to be exercised after 12 months of the issuing date, another 30% after 24 months and the last 40% after 36 months. 

Funds raised for working capital and future projects …

The exercise ratio is one unit of warrant/ESOP per one share at the exercise price of Bt38.10 per unit. The purpose of issuing warrants/ESOP is to reserve the funds as working capital, invest in its related future projects and/or pay down debts upon the warrant/ESOP exercising.  

… but proceeds assumed to be for debt pay-down 

Given that it has no clear future investment plans at the moment and, for the purpose of simplicity, we assume that it would use all proceeds from exercising warrant/ESOP to pay down its existing debts it had incurred from its digital TV and playhouse businesses. 

Net small positive impact from warrant and ESOP issuances 

We estimate a total share dilution impact of 7.7%, assuming total new shares of 34.86m from warrant and ESOP issuances. However, to calculate the net effect on EPS (between the negative impact of share dilution and the positive impact of lower interest expenses), we assume that the unit holders would exercise 1.3m units in FY15, 8.7m units/annum during FY16-18 and 7.4m in FY19 and the firm would gather proceeds of Bt50m in FY15, Bt332m/annum during FY16-18 and Bt282m in FY19 (based on the exercise price of Bt38.1). 

Assuming cost of debt at 5%, we estimate that its interest expense will decline Bt3m in FY15, Bt10m in FY16 and Bt17m in FY17.The net effects would be that the EPS rises 0.4% in FY15, 0.7% in FY16 and 1.3% in FY17. Hence, our sum-of-its-parts valuation increased 1% (to Bt50.50). Its financials will be more strengthened following the warrant and ESOP issuances. The debt-to-equity ratio declines from 0.39x to 0.37x at YE15, from 0.67x to 0.51x at YE16 and from 0.98x to 0.73x at YE17 because of the debt reduction—down 4% to Bt1.17bn at YE15, down 15% to Bt1.89bn at YE16 and down 10% to Bt3.09bn at YE17—and an increased equity base.

WORK remains the digital-only market share leader, and its digital ratings can sustain further rises since the inception of digital TV. Our BUY rating stands as we anticipate a bottom-line turnaround from 2Q15 through to 2H15.