RS

RS Plc 

Investment thesis

Following the analyst meeting, we feel much more upbeat about the FY15 outlook for RS’s digital TV operation, given increased ad rates and sustained top-five viewership. As such, we have upgraded our FY15 net earnings forecast by a hefty 37%, premised on a higher mean ad rate assumption for the firm’s digital TV channel. Thus our YE15 target price rises to Bt10.60 from Bt9.60. BUY!

Stronger TV business outlook—higher ad rate in FY15

Channel 8’s (RS’s digital terrestrial TV channel) audience share ranked fifth among commercial digital channels in Oct (maintained from Sept) and seventh among all channels (also including satellite and analog TV and public channels). Channel 8’s revenue jumped 52% QoQ to Bt228m in 3Q14 and will increase further in 4Q14, led by higher ad rates. Its mean net TVC rate rose to Bt12k/min in 4Q14. Management plans to increase channel 8’s ad rate to Bt50k/min in 1Q15. 

RS also intends to increase ad rates for one of its satellite TV stations, Channel 2, from Bt1.8k/min in 4Q14 to Bt10k/min in FY15. Channel 2’s viewership ranked seventeenth among all channels in Oct and first among satellite TV variety channels. The firm targets Channel 2 achieving the highest viewership among satellite broadcasters next year. Channel 2’s revenue jumped 70% QoQ in 3Q14 and is expected to rise again in 4Q14 (following a mean ad rate increase from Bt1.3k/min in 3Q14 to 1.8k/min).

Business restructuring—fatter GM expected

Because a consumer behavior shift has caused physical music sales to slump, RS is re-inventing its music business model. The firm has merged its contemporary/pop and Thai country music management teams and slashed production of CDs/DVDs, reducing staff and production costs. RS also receives advertising revenue-sharing from YouTube of Bt4-5m/month. Next year, the firm will launch new digital products with Line Thailand on a revenue-sharing basis. RS also plans to discontinue its COOL Celsius 91.5 radio station operation later this year, due to a poor performance. Management anticipates fatter GM for the music & radio business.

FY15 earnings forecast upgraded

We have upgraded our FY15 net profit forecast by 37% to Bt463m, mainly due to an expanded net mean ad rate for RS’s digital terrestrial TV channel (we conservatively model for Bt40k/min in FY15, up from Bt22k/min in our earlier FY15 forecast). Management believes that greater income from channels 8 and 2 will compensate for the absence of revenue from the World Cup next year.