GMM Grammy

GMM Grammy Plc (GRAMMY) 

4Q14 net loss much deeper than our estimate

GRAMMY reported a 4Q14 net loss of Bt445m, shallower by 20% YoY but deeper by 171% QoQ. The net loss was 123% deeper than we had expected, due to a 14% higher-than-assumed cost of sales. 

Results highlights

The net loss was shallower YoY because of the absence of a loss from the pay-TV subscription business, which was divested in July 2014. But the red ink deepened QoQ because of heavier OPEX tied to digital TV. GM was 22.6% in 4Q14, up from 19% in 4Q13 but down from 29.7% in 3Q14. Revenue totaled Bt2.93bn, up by 1% YoY and 14% QoQ. 

The music unit reported an income rise of 17% YoY and 76% QoQ. Media revenue fell 18% YoY and was flat QoQ, due to a lower TV unit contribution (some GRAMMY shows still air on the channels of long-established terrestrial TV networks; their ad rates are down). Broadcasting income dived by 60% YoY and 67% QoQ, as the firm dropped some of its satellite TV channels. Events revenue rose by 14% YoY and 58% QoQ, as more events were held during the quarter. O-shopping and other units posted an income jump of 50% YoY and 7% QoQ. GRAMMY’s digital TV channels posted Bt91m in revenue (Bt33m in 3Q14). 

Outlook

We expect the 1Q15 net loss to be shallower both YoY and QoQ. The YoY easing of red ink is led by the absence of a pay-TV unit loss (also, 5M14 was marked by political turmoil, which hit events income). The expected shallower QoQ net loss is due to higher revenue from the digital TV channels. GRAMMY’s digital TV ratings have been rising steadily (for both ONE and GMM channels), which should enable them to command higher ad rates (a very popular program, The Star 11, started airing in 1Q15). Moreover, the home shopping channel will post a profit for 1Q15 after breaking even in Nov 2014.

What’s changed?

We have revised our FY15 net loss forecast deeper by 75% to Bt736m, due to a bigger production cost assumption for the digital terrestrial TV channels, which were heavy in 4Q14 and are expected to remain so through 1H15.

Recommendation

Although the 4Q14 bottom-line was much weaker than we had expected, GRAMMY will deliver a much better performance for FY15, due to the absence of losses from the pay-TV subscription business and greater revenue at the digital TV unit. We still believe that the consolidated bottom-line will post black ink for FY16. As such, our BUY rating stands, premised on a return to profitability next year and long-term growth for the digital TV broadcasting operation.