RS

RS Plc 

 

Investment thesis

Despite the diminished 3Q15 and FY15 bottom-line expectations, we have a strong conviction that its digital TV business will return to profit in 3Q15 and remain optimistic over RS’ 4Q15-FY16 performance. This comes from the modest seasonal rise in 4Q15 and better advertiser confidence in ad budget spending following the economic recovery that is a consequence of government stimulus packages. We believe that RS’ performance will show a strong bounce in FY16, underpinned by a rise in its mean net ad rate, in tandem with the rise in its digital ratings. Our BUY rating stands.

FY15 bottom-line and target price downgrades

Based on the TV ad bookings in hand and higher costs than were expected from new content investment to boost its ratings (such as two variety shows), which were joint ventures with JSL Global Media Co., Ltd. (JSL), a major Thai content producer, we have revised down our 3Q15 core earnings to Bt40m (down 50% from our previous estimate of Bt80m)—down 85% YoY but turning to profitable from break-even point in 2Q15. Its satellite channel and music revenue should be flat QoQ but radio revenue will drop slightly, due to low season. 

Showbiz revenue should report QoQ growth, driven by more tailor-made events. We also have revised down our 4Q15 core earnings to Bt68m, a jump of 66% YoY and 70% QoQ, thanks to high seasonality, economic recovery and its revenue from non-recurring business, which we expect to rise steadily. We also cut our FY15 bottom-line figure to Bt108m (down 35% from our estimate of Bt167m), down 71% YoY, led by greater content costs. Our valuation falls 9% to Bt14.50.

RS’ rating still takes the high road

Nielsen revealed that RS’ rating retains its 4th rank consistently in the TV industry. Its rating for 4+ nationwide rose to 0.46 in August from 0.39 in July. The rise was due mainly to strong super-prime Thai soap operas and added sport content, especially Max Muay Thai (15+ nationwide), which was ranked third among sport-content broadcasting in August. Moreover, it has co-operated with JSL to produce two variety programs for its channel. This helps to attract more viewers so it has enjoyed better ratings in 2H15 (targets YE15 of 0.6 and YE16 of 0.8).

Strong bounce in FY16

We retain our belief that RS’ earnings in FY16 will grow considerably, mainly due to its digital TV business. We assume its mean net ad rate to jump 20% to 30k/min in FY16 and its utilization rate to regain from the average of 54% in FY15 to 85% in FY16. Its Channel 8 ratings have been rising continuously but its cost per rating point (CPRP, ~Bt20k/30 seconds) has been lower than its analog peers, thus, it has an upside to raise its mean net ad rate greater than we had anticipated for FY16.