Workpoint Entertainment

Workpoint Entertainment Plc (WORK)

Investment thesis
Our BUY rating for WORK stands, premised on: 1) anticipation of a 2H13 earnings recovery and 2) the greatest scope for upside from winning digital channel licenses of the Media stocks we cover. It remains our top pick in the Media sector.
YoY profit decline for 2Q13
We estimate net earnings of Bt75m for 2Q13, down by 46% YoY (but up 127% QoQ). The assumed YoY profit plunge is attributable to heavier OPEX, which we believe would have outweighed the effect of somewhat higher revenue and a lower corporate tax rate. Service costs should post a 23% YoY jump, led by higher TV production costs and an additional Bt20-25m/quarter in amortization expenses for new content rights, effective 1Q13. WORK bought new content for its planned digital TV and existing satellite TV platform in 4Q12-1Q13. We expect SG&A expenses to report a 52% YoY surge, led by marketing and staff costs.
The assumed QoQ profit jump was led by greater TV revenue with the broadcasting of one new sponsored TV show, a shallower gross loss at the satellite TV operation and high season. The satellite TV operation should post a Bt3m gross loss, against an Bt18m gross profit in 2Q12 (but 62% shallower QoQ), due to heavier content costs.
We estimate that 2Q13 TV ad income (excl. satellite TV) increased by 1% YoY and 20% QoQ, underpinned by greater revenue from one sponsored TV show, Family Business (which replaced 20 Years Gang 3 Cha in May) and the full impact of ad rate increases launched in 1Q13. Events revenue rose by 11% YoY and 474% QoQ, led by income from Thailand’s Got Talent (only Bt15-20m was booked in 2Q13), Songkran Day and an Exhibition organized for the Ministry of Agriculture & Cooperatives (Bt40m altogether). No movies, concerts or stage shows premiered in 2Q13. We assume the mean TV loading factor at 80% in 2Q13 against 64% in 1Q13 and 88% in 2Q12.
HoH earnings recovery expected for 2H13 
The forecast 2H13 profit growth will be led by revenues from three TV shows produced for third parties—Thailand’s Got Talent, The Voice and Roi Mue Sang Muang—three movies, two showbiz events and one big sponsored variety show. WORK also plans to bid for five state agency projects in 2H13.
FY13 earnings forecast and target price cuts
We have slashed our FY13 net profit projection by 20% (Bt430m) to factor in diminished expectations for 2Q13 earnings and FY13 TV ad income and a heavier production cost assumption. As such, our PEG-based YE13 target price drops 19% to Bt44.