RS

RS Plc 

Investment thesis

Our 2Q14 earnings expectation is now much lower, due to an impairment on the investment in La Liga broadcast rights and because the NBTC paid only Bt119m of the Bt427m it has promised as compensation for broadcasting the FIFA World Cup on free-to-air TV.  But further NBTC payments and a greater expectation for sales of set-top decoder boxes (after the firm entered a deal with CTH for EPL viewing), will make for a better 2H14 net profit. However, we maintain our FY14 earnings forecast unchanged at Bt295m, as we expect the two factors above to more-or-less offset each other. 

After we put a SELL call on RS with a YE14 target price of Bt8.60, its share price fell 14% to Bt8.10. The risk of further share price downside is limited and we expect modest earnings growth of 8% in FY15, so we have upgraded our rating from SELL to HOLD. 

2Q14 earnings estimate downsized

We now expect a 2Q14 net profit of Bt70m (we previously modeled for Bt135m), down 36% YoY but a QoQ turnaround from a 1Q14 net loss of Bt5m. The assumed YoY dive was mainly due to a Bt50m impairment on La Liga broadcast rights (booked to SG&A). Note that the NBTC paid only Bt119m of the Bt427m in agreed compensation in 2Q14.

The 2Q14 top-line is now expected to post a jump of 72% YoY and 95% QoQ to Bt1.3bn, led by media revenue—up by 150% YoY and 170% QoQ because receipts from the FIFA World Cup of Bt553m (of a total of Bt650m; 85% will be booked to 2Q14). Revenue from the music business should report QoQ growth, driven by physical sales (lower returns of CDs/DVDs). The Showbiz unit is expected to post an income plunge of 50% both YoY and QoQ, as the political chaos meant that public events were postponed.

Better 2H14 outlook, but FY14 view is unchanged

RS expects to receive the Bt308m in compensation still owed by the NBTC in 3Q14. Also, the firm targets 500k unit sales of its new sunbox set-top box decoder bundled with live telecasts of English Premier League (EPL) soccer matches in the upcoming season (August 16, 2014-May 24, 2015) after joining hands with rights-holder CTH. We preliminarily assume 300k box sales for FY14 (a profit of about Bt40m profit, assuming a net margin of 15%).

Although RS’s 2H14 bottom-line outlook now looks better, we have slashed our 2Q14 earnings estimate 48%, As such, our YE14 earnings forecast remains Bt295m.