Workpoint Entertainment
Play
Leader of the new DTTV players
We reiterate our Outperform rating on WORK with a 2017 DCF-based target
price of Bt47. We expect the digital TV business will continue to lead its
turnaround as ratings momentum will support both higher ad rates and
utilization. Workpoint TV’s firm grip on the No. 3 ranking and rising ratings
should attract more advertisers as ad spend per viewer becomes cheaper.
We expect record-high earnings in 3Q16 will act as a share price catalyst.
WORK is our top pick among TV broadcasters.
Investment highlights
- Adex reallocation under way. We believe adex reallocation is under way and
that incumbent players will lose adex share to newcomers. WORK’s channel has
reached breakeven level since 2H15 and profit seen in 2Q16 was impressive due to
economies of scale and high operating leverage. We expect the company will be
able to raise ad rates due to the wide gap between its audience share and market
share. Based on data in July, WORK had an audience share of 10.25%, much higher
than its market share of 7.30%.
- High ratings making more individual program selling than packing. WORK
has cemented its standing as the leader of second tier channels (overall No. 3) on
the back of positive ratings momentum. Rising ratings translate into a cheaper
spending for ad buyers, as the same amount of spending allows them to reach
more viewers. Moreover, higher ratings will allow the company to split off some hit
shows and sell advertising based on individual programs (average ad rate
Bt150,000/min) instead of a wholesale or “packing” price (average Bt44,000/min).
WORK is airing six programs in 3Q16 that it could price individually, including Ching
Roi Ching Larn, Prisana Fah Lab and Golden Microphone. This is the same number
as in 2Q16 but up from just four last year.
- Rising earnings momentum with less volatility from digital TV reaching
economies of scale. We foresee upward momentum in earnings driven by digital
TV. The average rating in 7M16 was 1.16, 23% higher than in Dec 2015, will
support negotiations at the end of the year for an increase in ad rates in 2017. The
new ad rates will be applied in late 1Q17, which we believe will push earnings to
another level. We expect less earnings volatility after digital TV reaches economies
of scale this year. We expect 2017/18 earnings growth of 57%/22% driven by
higher ad rates and utilization.
- 3Q16 to hit a record high driven by higher utilization & ad rates. We expect
the TV broadcasting business will be a catalyst for a continued improvement in Q3
earnings that began in Q1 and to reach another record high due to 1) the quarter
being the high season for TV adex, 2) a larger contribution from the concert & play
unit, 3) an expected increase in average ad rate to Bt50,000/minute in 3Q16, up
from Bt48,000/minute in 2Q16 and Bt37,000mn/minute in 3Q15, and 4) an increase
in utilization rate to 85% in 3Q16 from 80% in 2Q16 and 82% in 3Q15.
Valuation
- Based on the DCF methodology, we derive a YE2017 target price of Bt47. Our
Outperform rating reflects a continued earnings turnaround driven by the TV unit.
At the current level, the stock is trading at a PER of 39.65x, which will fall to 25.22x
in 2017 and then to 20.62x in 2018.
