GMM Grammy

GMM Grammy Plc (GRAMMY) 

 

Below estimate

GRAMMY reported a 4Q15 net loss of Bt1.3bn, deeper by 144% YoY and 977% QoQ. Excluding the extra loss from an impairment of its investment in CTH (Bt1.03bn) and a change in the accounting standard—Bt92m and Bt98m in 4Q15 and 4Q14, respectively—core loss was Bt248m, or a 42% shallower loss YoY but 107% deeper QoQ. The reported net loss was deeper in the red than our model by 8%, while core loss was 57% less than our Bt158m core loss estimate, due to lower GM and higher SG&A than assumed. Sales were in line with our assumption. 

Results highlights

The core loss was shallower YoY, led by a recovery in its Music business together with Home shopping, which reached break-even point and its cost efficiency program. GM was 34.8% in 4Q15, up from 25% in 4Q14 but down from 37% in 3Q15. Revenue totaled Bt2.02bn, a decline of 13% YoY and 3% QoQ. Its music unit reported a revenue drop of 11% YoY but a rise of 42% QoQ. Its GMM ONE business revenue fell 81% YoY and 72% QoQ, due to the result of migrating most TV programs from its analog channel. Its digital TV channel GMM25 business revenue declined 5% YoY but advanced 12% QoQ. Merchandise revenue climbed 10% YoY but was flattish QoQ. The equity loss from ONE enterprise was flat QoQ.

Outlook

We model a Bt290m 1Q16 core loss, or shallower by 13% YoY but deeper in the red by 17% QoQ. The expected shallower YoY core loss is due to higher revenue from digital TV channels. The QoQ easing of red ink is led by the higher content cost from its new content broadcasts and low seasonality for the media business. We expect it to deliver much better performance in 2H16, led by the brighter outlook for its digital TV business. 

What’s changed?

We have revised down our FY16-FY18 bottom line by 4%, 9%, and 43%, led by the impact of the change in accounting methods. The effect of higher financial cost will outweigh lower amortization expense. Our YE16 target price decreased by 7% to Bt16.80, reflecting such items that affected our PBV valuation methods on recurring business (no impact on DCF for digital TV business). 

Recommendation

We believe that the long-term outlook for its digital TV business remains bright, because its content in hand can be used to attract a larger audience and maintain its strong position in the competition for digital TV market share during the super prime-time Thai soap opera. GRAMMY’s digital TV ratings have been rising steadily (for both ONE and GMM channels), which should enable them to command higher ad rates. Our BUY rating stands.