Workpoint Entertainment

Workpoint Entertainment Plc (WORK)

 

Investment thesis

The behavior of media agencies has changed. Ad spending had been allocated to multiple channels, but now it will be directed to only the channels that gain high ratings. We believe that Workpoint TV, with ratings ranking first among digital channels, will be one of the top targets for ad spending in FY16. WORK remains one of our two digital TV picks for the next 6-9 months. Our BUY rating stands.

Its 15 year+ digital rating targeted at 1.5 by YE16 

Workpoint TV’s 18-hour rating (15 years+ nationwide) rose to 1.06 (Nov 1-15), down from 1.08 in Oct, led by the impact of changes in digital TV channel numbers. The first week after Workpoint TV moved to 23, its ratings dropped 10% but in the second, its ratings dropped only 5%. We believe the changes will have an only short-term impact after which its ratings will get back on track, led by its strong content. Although moved to 23, it remains on its default channel on the PSI platform. 

Its ratings should advance further in 4Q15 through FY16, due to its strong variety content and added weekend super-prime soap opera (SPSO). We think that its strategy to broadcast new content after the existing magnet content will be a key support to boost its new content rating. Its new SPSO (for every quarter), 7 Wun Jong Wen (season two) and Te Wa Da Tok Sawan; variety program, We Tee Tong Vintage; and, big format contents, Let Me in Thailand, King of Mask and I Can See Your Voice, will push its ratings even higher in FY16.

Concert and stage productions to drive 4Q15 earnings

We model a Bt44m net profit for 4Q15, up 32% YoY (led by digital TV revenue) but down 25% QoQ (thanks to bonus payouts). For the firm’s digital TV business, we expect its mean ad rate to rise to Bt40k/min and its utilization rate to 80% in 4Q15. Another driver to support earnings in 4Q15 is its big concert and stage productions—Prapas Concert II (four shows in October, which are 90% sold-out) and Hom Rong, The Musical (16 shows in November, which are 70% sold-out).

FY16 earnings upgrades 

We revise up our net profit projection for FY16 by 9% (to Bt336m) to reflect lower SG&A than was calculated. We assume a rise in WORK’s mean ad rate to 46k/minute (up 39% YoY) with an 83% mean utilization rate. WORK is more optimistic about ad rate prospects in FY16 than we are. It expects its ad rate to jump to Bt50k/minute. Its Cost per Rating Point (CPRP) will be maintained at 20k/30 seconds in FY16, which we think that it’s still cheaper than Ch7 and BEC‘s HD. 

Its long-term upside from the ad rate hike will come from its SPSO ratings, which we believe will be higher than Dok Mai Lai Pad Korn (average rating of 2.5). Management guided that the firm had already sold Bt1.7-1.8bn in advertising spots for FY16, so far. Concert and stage shows remain strong in FY16, with at least five lined up. The firm targets a net margin of 12%, against our expectation of 10.2% in FY16.