Workpoint Entertainment

WORK is heading for superstar status with TV rating (TVR) growing to 1.19 from 0.25, third behind Channel 7 and BEC. Starring with unique and top-quality content, there is ample room for its TVR to grow. Its cost per rating point (CPRP) is very low at a 50% discount to leaders, which we feel is unjustified given the steady gain in TVR. We expect 73% EPS CAGR in 2015-18 and ROE will double to 17% in 2018 from 7% in 2015. It is the cheapest stock in terms of PEG. WORK is a growth stock. BUY with a target price of Bt55. 

 

Third place: hard work, not luck. Just two years after DTTV took off in April 2014, WORK has climbed to reach third place behind Channel 7 and BEC in terms of both audience share and TV rating. In March, its audience share was 8% (up from 2.8% in April 2014) and its TV rating was 1.19 (up from 0.25 in April 2014). WORK has long been a major content provider to the major free-to-air channels and its original programs with a focus on variety and game shows unlike the first-comers (Channels 3, 7 and 9), whose métier is soaps, are good enough to steal audience share and TVR from the them. Its programs are well recognized as seen in the numerous awards from both domestic and international organizations. In our view, its one-of-a-kind status should give it a TVR of at least half of the first-comers, or about 1.5 (1.19 in March 2016).      

 

Ad rates to step up. The unjustified gap between WORK’s CPRP and that of the leaders and its gain in TVR gives WORK room to step up its ad rates. We also expect it to benefit more from an ad rate hike than the other smaller players. First, 85% of its total revenue comes from the TV business while TV contributes just 57% to RS and 50% to GRAMMY. Second, its TV rating is much higher than the other two (0.6 for RS and 0.2 for GRAMMY) and its content is more unique. This implies WORK will be able to build TVR and thus ad rate better than either RS or GRAMMY. Finally, in spite of higher TVR, its CPRP is the lowest, so it has more room to raise ad rate than they do. We forecast ad rate to double from an average of Bt35K/min in 2015 to Bt72K in 2018.   

 

Earnings to skyrocket in three years. WORK is headed for a swing up in earnings: we expect an EPS CAGR of 73% for the next three years (2016-2018), with earnings skyrocketing to Bt842mn in 2018 from Bt163 in 2015. Key to this is: 1) several steps up in ad rate to narrow the gap between it and the leaders and 2) benefit of operational leverage as most costs, especially content costs, are fixed. The surge in earnings will build ROE to 17% in 2018 from 7% in 2015.   

 

Buy at TP of Bt55. We initiate coverage as Buy with DCF-based TP of Bt55 (cost of equity 16% and WACC 9%). The sharp correction in share price over the past three months is a buying opportunity. The market has been  concerned over slow ad spend and this may crimp WORK’s ability to raise ad rate right now but given the low CPRP compared to the leaders, we reiterate our view that it will make serial ad rate hikes for many years to come. WORK is trading on a high PE of 38x based on EPS in 2016 but looks cheap if we look at the earnings growth profile at 73%, implying PEG of 0.5x.