RS

Investment thesis

3Q14 earnings will be the best of the year, led by the NBTC’s compensation payout for the FIFA World Cup broadcasts. We are also more optimistic over RS’s terrestrial TV operation, as it has proved sustained top-five viewership and a higher ad rate. The 4Q14 net profit is expected to rise YoY, driven by terrestrial TV and showbiz income. We have, thus, upgraded our rating from HOLD to BUY with a higher YE15 target price of Bt9.60 (previously Bt8.80).

3Q14 to prove the best earnings quarter of the year

We now expect a 3Q14 net profit of Bt190m (we previously modeled for Bt110m), up by 53% YoY and 164% QoQ. The assumed YoY and QoQ rise was driven by a Bt251m compensation payment for the 2014 FIFA World Cup broadcasts and the absence of an impairment on La Liga broadcast rights (against an impairment of Bt41m in 2Q14).

The 3Q14 top-line is now expected to post a jump of 37% YoY but a fall of 8% QoQ. The assumed YoY revenue jump was led by World Cup compensation. The QoQ drop was driven by a dive in music income—lower production and sales of CDs/DVDs. Revenue from the media unit should report a QoQ drop, due largely to lower La Liga income. The showbiz unit is expected to post a plunge in receipts of 26% QoQ, as public events were postponed and no big concerts were held during the quarter. 

Channel 8 is doing great

Channel 8’s (RS’s digital terrestrial TV channel) audience share ranked fifth among commerce digital channels in Sept (maintained from August). 3Q14 Revenue at Channel 8 should post a 52% QoQ rise to Bt228m and increase further in 4Q14, led by a higher ad rate. Note that Channel 8 announced in June that its mean TVC rate would rise to Bt12k/minute in 4Q14. Its utilization rate rose from 45% in 2Q14 to 55% in 3Q14. 

YoY net profit growth expected for 4Q14

Although the absence of a World Cup compensation payment will make for weaker QoQ earnings in 4Q14, we expect YoY net profit growth, led by greater revenue at Channel 8 and the showbiz unit. There was a D2B concert on Nov 2 and the biggest folk music event of the year, Luk Thung Festival Season 4, will be held in Dec.  

We have upgraded our net earnings forecasts by 31% to Bt371m for FY14 (mainly due to an expanded expectation for 3Q14) and by 6% to Bt338m (higher ad rate and utilization rate assumptions for digital TV). Note that we still expect an FY15 net profit decline of 9% YoY because of the high base set by FIFA World Cup-related income in FY14. Stripping out the World Cup component from FY14 profit (about Bt170m), we would expect a 68% jump in the bottom-line in FY15.