GMM Grammy

GMM Grammy Plc 

 

Investment thesis

We expect GRAMMY to post a deeper core loss in 4Q15 because its revenue growth is unable to keep pace with rising digital costs, thus, its digital TV business is still in the red. Its net loss is likely to post deeper in the red than expected in 4Q15, thanks to a huge extra item—impairment of its investment in CTH. However, this item is regarded as a one-time non-recurring and non-cash item. We slashed our YE16 target price by 14% (based on our P/BV valuation), to factor in this extra item. We believe that its consolidated bottom line will post a shallower net loss in FY16 and turn to black ink in FY17, led by a digital TV revenue jump. Moreover, we think that it will be successful over the long term because its digital TV channels have offered the right content to its target audience. Our BUY rating stands, based on its bottom-line turnaround story in 2017.

Insights into 4Q15—reddened appearance due to extra item

We maintained our core loss estimate of Bt158m, or 64% shallower YoY but deeper in the red by 32% QoQ. The QoQ deeper red ink is spurred by the higher cost of its new TV content and the expansion of its drama broadcasting time during weekends. Note that its net loss is likely to post a deeper loss than our earlier forecast of Bt158m, due to the impairment of investment in CTH. If we include Bt1bn for this extra item in our projection, its 4Q15 net loss would widen to Bt1.2bn, or 168% YoY and 894% QoQ deeper overdrawn. We revised our FY15 net loss estimate to Bt1bn, factoring in this extra item.

Showbiz to lead revenue growth QoQ

Its digital revenue of ONE and GMM25 channel will rise 9% QoQ and 10% QoQ, respectively. Music revenue will jump 30% QoQ, thanks to the high season for show business; during 4Q15, the events included Potato and the Big Mountain Music Festival. Its home-shopping unit revenue will rise 5% QoQ, as a result of an average daily sales increase. Movie receipts will drop 7% QoQ—the film May Who grossed a Bt71m in revenue in 4Q15, against Bt83m for Freelance’s gross take in 3Q15. 

GRAMMY’s ratings to show a continuous rise

The company this year plans to spend Bt2bn to enhance its prime-time content, particularly in Thai soap operas and variety programs. Of that amount, Bt1.5bn will be allocated to several programs on ONE channel, while the balance of Bt600m will be used to produce shows for the GMM25 channel. ONE channel will add more TV content during prime time and also focus more on noon airtime slots, with more attractive daily news and entertainment programs. While GMM25 Channel has focused on differentiated content, such as soap operas and Thai series that focus on teenagers, with new episodes of the overwhelmingly popular Club Fridays, the Series 7. Thus, we believe ratings and audience share of both channels should rise further on the back of stronger content in 2016-2017.