Workpoint Entertainment

Workpoint Entertainment Plc (WORK)

Investment thesis
Expected flattish 1Q13 earnings will be followed by stronger 2Q13 numbers. WORK is our top pick in the Media sector, as its bottom-line would expand the most as a result of winning digital TV licenses. We are in the process of re-rating our target price to factor in the scope for upside from a digital terrestrial TV platform.
Expect 1Q13 earnings to be flattish YoY
A Bt76m net profit is anticipated for 1Q13, down 1% YoY but up 42% QoQ. In YoY terms, we assume that heavier OPEX offset the effect of higher ad revenue and a lower corporate tax rate. The QoQ profit jump is due to lower SG&A (there were one-time expenses related to salaries, bonuses and director fees in 4Q12). Service costs will post a jump for the quarter, driven by heavier purchases of foreign content and greater production spend and staff costs for its free-to-air satellite TV channel Workpoint TV. 
We estimate that 1Q13 TV ad income will post a rise by 12% YoY (but drop 16% QoQ) with the launch of three new shows—G-War (75 minutes/week), Science Fighting (60 minutes/week) and Off Fit Pichit Jai (75 minutes/week), a 25-minute broadcasting slot extension for Fan Pan Tae and the impact of ad rate increases for seven shows, effective Jan 2013 (note that some major clients’ contracts didn’t expire till Feb or March). There were no revenues from concerts or stage plays in 1Q13, but there might have been income from the sale of rights for Yak (an animated movie) in 1Q13. We assume that events revenue will report a YoY and QoQ drop.
Management bullish on scope for upside from digital TV platform
WORK aims to bid for two digital terrestrial channels—one standard variety and one children’s channel. It expects mean ad rates of Bt40-50K/min for the children’s channel and above Bt100K/min for the variety channel within 4-5 years of service launch (its satellite channel ad rates typical range only Bt10-15K/min).
Management guides for Bt140m in ad revenue from its two digital channels in the first year of operation (a 0.4% share of free TV market ad spend), Bt500m in the second year (1% share), Bt1bn in the third year (2% share) and Bt3bn in the fifth year (5% share). It targets two years to break-even for the two digital TV channels. The funding source will be debt. During the initial launch phase of the digital platform, WORK will continue broadcasting shows with high ratings on current free-to-air TV stations and will shift content from its satellite TV channels to its new digital channels. We will factor the anticipated added value of the two digital TV channels into our model soon.