GMM Grammy

GMM Grammy Plc (GMM) 

 

Investment thesis

GRAMMY’s strength is that it has in-hand and in its library the greatest variety of quality content, especially soap operas and series. Even so, its content costs remain high in its initial phase of its digital TV business while it boosts ratings. For this reason, it is still in the red in early stages of its digital TV business because revenue growth cannot keep pace with rising costs. However, the long-term outlook for its digital TV business remains bright, because its content in hand can be used to attract a larger audience and maintain its strong position in the competition for digital TV market share during the super prime-time Thai soap opera slot. We believe that its consolidated bottom line will post a shallower net loss in FY16 and turn into black ink in FY17, led by a digital TV revenue hike. Our BUY rating stands.

Insights into 3Q15—higher-than-expected content cost

Based on the TV ad bookings in hand and higher costs than expected from new content investment to boost its ratings for both ONE Channel and GMM25 Channel, we estimate a Bt263m core loss for 3Q15 (against our previous core loss estimate of Bt160m), or deeper in the red by 60% YoY and 17% QoQ. Music revenue will be flattish QoQ, thanks to higher revenue from copyright, Youtube sharing and digital music offsetting the showbiz low season and a drop in physical sales. Its home-shopping unit revenue will rise 8% QoQ, led by average daily sales increased from Bt5.1m to Bt5.5m. Movie receipts will shoot up 40% QoQ—the film Freelance grossed a Bt83m in revenue in 3Q15. 

Shallower core loss expected in FY16

We expect GRAMMY to show a slightly shallower core loss in 4Q15, due to higher revenue from digital TV business. We assume its content cost will remain high in 4Q15. We now estimate a new core loss for FY15 of Bt1.02bn (shallower by 16% YoY), against our previous core loss of Bt807m, led by higher-than-expected content costs and SG&A.  We expect it to deliver a much better performance with a significant shallower consolidated core loss of Bt220m in FY16 (shallower by 78% YoY), against our previous core profit of Bt212m. We are confident about turnaround prospects for YE17, have rolled over target price to YE16 and derived the new target price of Bt20.00.

GRAMMY’s ratings to show a continuous rise

Ratings of ONE Channel and GMM25 Channel led the pack in September. Ratings and audience share of both channels should rise further on the back of their stronger the new Thai soap opera content. ONE Channel has revamped its programs in 3Q15 through 4Q15 by focusing on the super-prime soap operas and sitcoms that are considered as its flagships. GMM25 Channel has aired soap operas and series that focus on teenagers. Episodes of the overwhelmingly popular Club Fridays the Series have been spun off into extra chapters—To Be Continued. Moreover, the company’s live concert broadcasts will be able to expand its target group to middle-aged.