RS

RS Plc 

 

Below our estimate

RS reported a Bt27m net profit for 3Q15, down 90% YoY and 35% QoQ. Excluding the one-time tax credit of Bt42m in 2Q15, core bottom line turned profitable, against breakeven point in 2Q15. The reported net profit was below our previous Bt40m net profit estimate, due to lower sales and GM than assumed. GM was 28.3%, lower than our 31.3% projection. 

Results highlights

The YoY core earnings dive was due to the high 3Q14 base comparison related to the recognition of the 2014 FIFA World Cup revenue and La Liga revenue. The QoQ core improvement was led by higher revenue and lower cost of sales, resulting in higher GM. The top line dropped 32% YoY (led by the high 3Q14 revenue base from the 2014 FIFA World Cup and La Liga and the decrease in the physical sale of music) but rose 2% QoQ—driven by showbiz revenue (up 8% QoQ) and other revenue (up 37% QoQ), which outweighed media revenue (down 2% QoQ). 

Music revenue was flat QoQ.GM was 28.3% in 3Q15, down from 47.2% in 3Q14 but up from 26.1% in 2Q15. If broken down by business unit, music GP rose 11% YoY and 41% QoQ, media GP dropped 74% YoY and 26% QoQ, and that of showbiz rose 20% YoY but dropped 30% QoQ.

Outlook

We remain optimistic over RS’ 4Q15-FY16 performance. This comes from the modest seasonal rise in 4Q15 and better advertiser confidence in ad budget spending following the economic recovery that is apparently a consequence of government stimulus packages. We forecast a Bt42m net profit for 4Q15, a jump of 60% QoQ (but flattish YoY), led by the greater mean utilization rate of Channel 8 (to 70%), revenue from its LINE music project starting in September 2015 (fully recognition in 4Q15) and revenue from two major events in December—Beauty Now & Next 2016 and Thai International Travel Fair. We expect Channel 8’s mean ad rate to be stable at Bt25k/min in 4Q15. 

What’s changed?

We have revised our FY15 bottom line by 35% (to a Bt70m net profit), led by worse 3Q15 results. We have rolled over our target price to YE16 and derived our new target price of Bt16.

Recommendation

We are confident in the long-term prospects of RS’ digital TV business, underpinned by a significant rise in its ad rate in FY16 in tandem with its digital rating rise. RS’ consolidated profit will start to recover significantly in FY16. Our BUY rating stands.