Workpoint Entertainment

Workpoint Entertainment Plc (WORK) 

 

WORK is being affected by the slowed economy, with TV ratings better but unable to raise ad rates and so, with no clear signs of a strong economic recovery, we have revised down our 2016 earnings forecast by 20%. We emphasize that this is the only year being cut as we expect the economy to get back on its feet and WORK, with rising TV ratings, will then be able to bring ad rates back up to full scale in 2017. We maintain Buy with unchanged DCF-based target price of Bt55 since our revision affects merely one year.    

 

Cautious tone: We attended WORK’s analyst meeting last Friday at which management updated its business outlook for the rest of the year. It seemed more cautious this time due to continued economic sluggishness. Key takeaways:   

 

- Ratings for WORK’s TV channel continue to rise, reaching 1.19 in April 2016 from 1.14 in March, and surging in May at 1.42 thanks to the broadcasts of the Olympic qualification games for women’s volleyball, with the Thai team doing an outstanding job. Without this event, management believes its ratings would have been ~1.2. WORK continues to be third-placed, but the gap between its TVR and BEC (#2) is narrowing, with MONO taking fourth place away from RS. WORK believes it will at the very least keep its ratings at 1.2 for the rest of the year.   

 

- Operational figures for 2Q16 as of now look encouraging with utilization rate and ad rate both rising from 1Q16. Utilization so far is ~80% (up from 60% in 1Q16) and ad rate is Bt49K/minute (vs. Bt46K/min in 1Q16). Cautious in spite of the steady rise in ratings, WORK maintains its view that ad rate could hover at Bt50K/min (close to the 2Q16 number) for the rest of the year, preferring to err on the side of caution as the economy is lackluster and strong recovery – which would allow it to raise ad rates - may not come until next year.  

 

 Its event business (5% revenue contribution in 1Q16) looks set to meet WORK’s forecast revenue of Bt120-150mn, with 5-6 events per quarter. WORK expects Dinosaur Planet, in which it holds ~30%, will be a cash cow. Daily visitors have reached ~3,000, paying an average of Bt450/person – comfortably above breakeven of 1.8-1.9K visitors per day.   

 

Revise down earnings but only for 2016. We have revised our forecast for only 2016, bringing it down 20% to Bt350mn (from Bt445mn) to incorporate the softer economy. The biggest change was a reduction in TV revenue, which contributes ~87% of total revenue. We cut our assumed utilization rate to 80% from 83% and average ad rate to Bt50K/min from Bt55K. We left unchanged the revenue and earnings forecasts for 2017 and on, as fundamentals remain strong and we believe only 2016 will be hit by the soft economy.  

 

Maintain BUY with DCF-based TP of Bt55. Since we revised only our 2016F, the impact on our DCF-based target price is minuscule. We leave our target price at Bt55 and still Buy. We still see WORK as a growth stock with a series of ad rate hikes ahead.