Workpoint Entertainment

Workpoint Entertainment Plc (WORK)

- WORK has used its high TVR to bump up ad rates in 3Q16 and expects to be able to raise them again in 4Q16 to Bt57K/min – nicely above the Bt46K in 1Q16. The steady airing of new programs will, it believes, allow it to raise rate to Bt60K/min in 2017, closing in on our bullish assumption. If so, it would lead to a very high 61% earnings growth next year, so 30x 2017 PE does not look expensive. Buy with TP of Bt55. 

- Positive tone: WORK’s analyst meeting on Friday focused on its business outlook for the rest of the year. It is doing well: its excellent TV rating (TVR) let it raise ad rate in 3Q16 and it sees a chance for another bump up in in 4Q16. Key takeaways:  

- Ad rate: Rates were raised in 3Q16 to an average of Bt53K/min from Bt50K in 2Q16 and Bt46K in 1Q16. Ad slots are 79% filled, close to that in 2Q16 and good growth from 61% in 1Q16. Though TVR did not change much – it was 1.19 in July from 1.16 in June - it was able to rate ad rate in 3Q16. It has aired several new programs this quarter, including “Super Fan” (formerly on Channel 5 where it enjoyed high ratings) and “Mai Pod Nee” (a singing contest). Mai Pod Nee has become very popular, with a TVR of 2.7-3.2, well above WORK’s average. It has another big program in the wings, “Let me in Thailand”, which it will air in 4Q16. It expects to thus be able to raise its ad rates again in 4Q16 to Bt55-57K/min, closing in on its target of Bt60K by 2017, growth of 20% from the average of Bt50K in 2016.    

- Tax negative surprise. In 2Q16 it was hit by a bad surprise with regards to taxes on its Dinosaur Planet project. The Revenue Department says most of the assets linked to Dinosaur Planet have to be depreciated according to useful life, which is ~five years. But it may have to scrap this project next year if it is unable to extend its lease of the land or find a new place. Because of this, it is expensing all costs linked to this project this year. This difference meant it had to pay higher taxes in 2Q16, sinking equity income into the red. The firm is in the process of negotiating with the Revenue Department and expects to make its case – and if so, it could reverse some of the loss to revenue in 3Q16. 

- Universal Service Obligation (USO). Unlike RS, WORK has not been accruing the USO cost since digital TV started up in July 2014. The NBTC is likely to announce a new rule for both license fee and USO in October, which means WORK will have to begin booking this cost for the first time in 4Q16. The impact on earnings is ~Bt14mn based on quarterly TV revenue of Bt700mn, or 10% of quarterly earnings.     Maintain BUY with DCF-based TP of Bt55. There is upside from new guidance, particularly ad rate. We assume a flat rate of Bt50K in 2H16 from 2Q16, while WORK expects a rise. At the same time, the potential rise in regulatory cost may offset this and we leave our 2016 earnings forecast unchanged. We do continue bullish on WORK as we expect it to be able to raise rates for many years to come, with forecast a high CAGR of 70% in 2016-2018. Our DCF-based TP is unchanged at Bt55.