Entertainment - Media

Entertainment - Media  

 

- 1Q15 profit falls 27%qoq, 34%yoy 

Media companies under our coverage posted 1Q15 normalized profit of B1.1bn, falling 27%qoq and 34%yoy as a result of weak advertisement spending in low season amidst the economic deceleration. TV operators' revenue contracted by 8%qoq on average since average audience volume per minute of all free TV channel decreased in January-February. Although their income grew by 11%yoy on average, their cost increased at a faster pace, mainly from amortization, network rental, and production of new contents for digital TV channels that have been aired since April, thus depressing the TV's operators' normalized profit by 34%yoy. Meanwhile, for out-of-home media and cinema businesses that faced less competition than TV business, their profit dropped from 4Q14 but continued growing from 1Q14. 

- High-rating TV operators to make profit in 2Q15  

2Q15 is a high season since audience volume will increase during long school break and rating of many digital TV channels has improved from 2Q14, so the sector's earnings are projected to increase significantly both qoq and yoy. Income from cinemas is projected to leap most remarkably because many blockbuster films have been aired in 2Q15 and eight new cinemas at Emquartier are opened. MAJOR's profit is projected to make the year's peak in 2Q15; the share price has already absorbed the positive factors already though. TV and out-of-home media businesses are anticipated to rebound as well, especially digital free TV operators with the third and the fourth highest rating, WORK and RS, which are projected to rebound to profit from 2Q15 on. 

BEC with analog Channel 3 since the beginning of the year maintained the second highest rating, probably keeping its rating high. After program reshuffle of BEC's Channel 3 SD and Channel 3 Family in early March, their rating have significantly improved since April, so BEC's income is expected to rebound qoq. For an out-of-home media company VGI, although its advertisement media business in offices and on BTS are projected to grow well, it would be negated by termination of modern trade contracts, so its normalized profit is estimated to stay flat. 

- NEUTRAL. Top pick: WORK  

The sector's earnings are expected to rebound in 2Q15 after their share prices have declined due to weak earnings in 1Q15. Media stocks are attractive now. We upgrade our recommendation from UNDERWEIGHT to NEUTRAL. Top pick is WORK(FV@B50) for over 40% upside, continuously high rating, and potential profit in 2Q15. We also favor RS(FV@B21) that would make profit in 2Q15 and BEC(FV@B51) with strong business and financial position.