Thailand Company Guide Workpoint Entertainment PCL
Version 17 | Bloomberg: WORK TB | Reuters: WORK.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 21 Aug 2018
FULLY VALUED (Downgrade from HOLD) Need time to rebuild its ratings Last Traded Price ( 20 Aug 2018): Bt39.75 (SET : 1,701.42) Price Target 12-mth: Bt36.00 (-9% downside) (Prev Bt46.00) Downgrade from HOLD to FULLY VALUED with lower TP of Analyst Bt36. After the weak 1H18 results, we believe WORK’s soft Nantika WIANGPHOEM, CFA +66 28577836 [email protected] outlook will persist in 2H18 due to the lack of new hit
What’s New programmes compared to last year. Although we believe the advertisement budget will increase in 2H18 from economy • 1H18 net profit came was soft at Bt281m (-49% y-o-y), growth, we think budgets will be allocated largely to higher- affected by lower rating from lack of big hit shows rating channels. Hence, we revise our earnings forecast down, • 2H18 outlook remains soft but expect y-o-y earnings mainly by cutting TV revenue from lower utilisation and ad rates improvement in 4Q18F from low base in 4Q17 throughout our forecast period. Our DCF-based TP for WORK falls to Bt36, which prompted us to downgrade our rating from • Cut FY18/FY19 net profit by 25%/24% to reflect more HOLD to FULLY VALUED. In the long term, once WORK is able conservative view on revenue and gross margin to fully regain its ratings (back to c.1.3-1.4% in 2017 from • Downgrade from HOLD to FULLY VALUED with lower 1.04% in May 2018), opportunities to re-rate its share price TP of Bt36, based on DCF valuation may arise.
Where we differ. We anticipate a more competitive industry going forward and impute lower revenue growth from lower Price Relative utilisation rates. As the market has a more aggressive view, our earnings forecast is lower than consensus. Potential catalysts. WORK’s share price has been driven mainly by its strong earnings growth, which can be attributed to its high TV ratings via continuous launches of new hit programmes. We expect its earnings to record new highs in the coming years, which should act as a key re-rating catalyst. The Forecasts and Valuation robust growth should be driven by i) higher average ad rates, FY Dec (Btm) 2016A 2017A 2018F 2019F and ii) better economies of scale, as c.90% of its cost base is Revenue 2,634 3,853 3,523 3,631 fixed (with low variable costs). EBITDA 917 1,754 1,492 1,559 Pre-tax Profit 255 1,166 853 939 Net Profit 199 904 678 747 Valuation: Net Pft (Pre Ex.) 199 904 678 747 Our TP of Bt36 is based on DCF valuation (WACC of 8.8%). Net Pft Gth (Pre-ex) (%) 21.4 355.2 (25.0) 10.1 EPS (Bt) 0.48 2.11 1.55 1.70 Key Risks to Our View: EPS Pre Ex. (Bt) 0.48 2.11 1.55 1.70 EPS Gth Pre Ex (%) 21 344 (27) 10 Fierce competition, changes in audience preferences, market Diluted EPS (Bt) 0.48 2.11 1.55 1.70 expansion by other media, and reliance on key staff. Net DPS (Bt) 0.27 1.42 1.00 1.11 BV Per Share (Bt) 7.14 10.4 11.1 12.1 At A Glance PE (X) 83.5 18.8 25.7 23.4 Issued Capital (m shrs) 442 PE Pre Ex. (X) 83.5 18.8 25.7 23.4 Mkt. Cap (Btm/US$m) 17,551 / 529 P/Cash Flow (X) 28.5 12.4 14.7 13.4 EV/EBITDA (X) 17.6 8.9 10.6 9.8 Major Shareholders (%) Net Div Yield (%) 0.7 3.6 2.5 2.8 Phanya Nirunkul (%) 25.91 P/Book Value (X) 5.6 3.8 3.6 3.3 Prapas Cholsaranon (%) 25.91 Net Debt/Equity (X) CASH CASH CASH CASH Nortrust Nominees Ltd. (%) 10.74 ROAE (%) 6.9 24.4 14.6 14.7 Free Float (%) 33.75
Earnings Rev (%): (25) (24) 3m Avg. Daily Val (US$m) 4.2 Consensus EPS (Bt): 2.02 2.39 ICB Industry : Consumer Services / Media Other Broker Recs: B: 6 S: 5 H: 5
Source of all data on this page: Company, DBSVTH, Bloomberg Finance L.P
ed: CK / sa:CW, CS Company Guide Workpoint Entertainment PCL
WHAT’S NEW Dampened outlook persists
Recap of 1H18 earnings performance. WORK posted soft net Cut earnings in FY18F/FY19F by 25%/24% to reflect more earnings of Bt281m (-49% y-o-y) in 1H18. The weak conservative outlook. We impute a more conservative view in performance was mainly due to the fall in ratings from 1.4- our forecast, mainly to reflect a lower ad rate from an 1.5% to 1.0-1.1% in 1H18, no thanks to its competitors’ average ad rate of Bt82,000 to Bt75,000 per minute ability to deliver hit programmes and its lack of new big hit throughout our forecast period to reflect the lower-than- programmes. Thus, WORK registered a revenue contraction expected rating and the fact that the industry is currently of 10% and this led to lower gross margins (44.1% in 1H18 facing pressure from cheaper media platforms such as online vs 56.2% in 1H17) as well as higher SGA/sales (22.9% in and out-of-home media. We also cut our gross margin 1H18 vs 18.8% in 1H17), no thanks to lower cost leverage. assumption from 51.2%/51.5% to 45.6%/45.9% in FY18/FY19 due to expectations of lower economies of scale Soft outlook expected to persist in 2H18. Given its current from lower revenue. Thus, our TP falls to Bt36, based on DCF shows and upcoming shows in the pipeline, we believe that valuation. Given the potential downside to our new TP as well WORK’s ratings might remain under pressure in 2H18 as the soft outlook that is expected to persist, we downgrade (compared to 2H17). However, given the low base of our rating on WORK from HOLD to FULLY VALUED. The earnings in 4Q17 from the cremation of King Rama IX, we emergence of new hit programmes should boost WORK’s had expected to see y-o-y earnings improvement in 4Q18F. overall ratings in the longer run. In the longer term, once Nevertheless, we might see some new developments, WORK is able to fully regain its ratings (back to c.1.3-1.4% in including a new variety show in collaboration with BNK 48, a 2017 from 1.06% in Jul 2018), opportunities to re-rate its new version of the Mask Singer (singing show), Fan Pan Tae share price may arise. 2018 (quiz show) and Thailand’s Got Talent (talent contest). In addition, WORK has also acquired the licence to broadcast volleyball games (World Championship 2018) and ASEAN games which will be aired in 2H18. With new shows coming online, WORK should still achieve its targeted average ratings in 2018 of 1.14%-1.15%.
Quarterly / Interim Income Statement (Btm) FY Dec (Btm) 1H17 1H18 Chg y-o-y Sales 1,920 1,726 -10% Cost of Goods Sold (841) (965) 15% Gross Profit 1,079 761 -29% SGA Expenses (360) (396) 10% Operating profit 719 365 -49% Other Income/expense 32 17 -48% Share profit / loss (4) 3 -181% EBIT 748 385 -48% Interest expense (49) (31) -36% Pretax profit 699 354 -49% Income Tax (150) (68) -55% Minority interest (2) (5) 116% Norm. Profit 546 281 -49% Extra items 0 0 n.m. Net Profit 546 281 -49%
Gross Margin 56.2% 44.1% SGA/ Sales 18.8% 22.9% Operating Margin 37.4% 21.2% Net Margin 28.5% 16.3%
Source of all data: Company, DBSVTH
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Company Guide Workpoint Entertainment PCL
Top 3 highest-rated channels CRITICAL DATA POINTS TO WATCH
Critical Factors High ad rates, hit programmes. Normally, WORK sells ad packages with fixed rates to agencies. However, in 4Q15, WORK had some hit programmes with ad packages different than fixed standard packages and were based on the Cost Per Rating Point (CPRP). The ad rates for these big hit programmes (the prime time) ranged from Bt200,000-240,000 per minute. In 2017, ad packages for some programmes – “The Mask Singer” “Mic Thongkam Kids” and “I Can See Your Voice” – were sold separately due to their solid ratings. However, due to the lack of 2017 sales breakdown big hit programmes in 1H18, we forecast its average ad rate per Events Others minute to inch down from Bt76,000 to Bt75,000 in 2018F and marketing 1% 4% 2019F. Concerts 5% New programmes coming onstream. To gain higher ratings and audience share, WORK’s new programmes lined up for 2018 are The Show (music), The Rapper (music), Diva Makeover (variety) and BNK48 Show (variety). Continuous launches of Television new programmes to gain higher ratings may allow the company programs to charge higher ad rates on a sustainable basis. As a result, 90% revenue could continue to expand.
Better economies of scale. WORK has c.90% of costs as fixed Gross margins (%) costs that are relatively independent of revenue, including 60.0 amortisation expenses for its digital TV licence, broadcast rental 54.8 55.0 fees, production costs and amortisation expenses for purchased 50.0 45.6 45.9 contents. Top-line growth will enable WORK to enjoy the 43.2 45.0 42.5 benefits from better economies of scale. WORK’s gross margins 38.2 improved from 43.2% in 2016 to 54.8% in 2017. Nevertheless, 40.0 given softer revenue in 2018, we expect the gross margin to 35.0 30.2 decline to 45.6% in 2018F and 45.9% in 2019F. 30.0 25.0 Social media expansion. As more media companies venture into 20.0 popular social networks, WORK has also expanded its on-air 2013A 2014A 2015A 2016A 2017A 2018F 2019F channels via social networks such as Youtube, Facebook and Gross margin (%)
Line TV to take advantage of potential opportunities in social Revenue and net margins network. However, due to limited target groups for social Bt m networks, most agencies still prefer TV to promote products and 4,500 55.0 3,853 4,000 3,631 services. The company believes that social media will grow in 3,523 45.0 Thailand, although not too rapidly in the next few years. 3,500 3,000 2,634 35.0 2,388 2,500 2,167 2,053 23.3 18.9 20.4 25.0 2,000 1,500 10.9 15.0 6.7 7.4 1,000 -0.8 5.0 500 0 -5.0 2013A 2014A 2015A 2016A 2017A 2018F 2019F
Sales Net margin (%)
Source: Company, DBSVTH
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Company Guide Workpoint Entertainment PCL
Leverage & Asset Turnover (x) Balance Sheet: Despite a net cash balance of Bt870m as of end-Jun 2018, WORK has Digital TV Licence payable of Bt379m which can be considered a major liability. Repayments for the Digital TV Licence are c.Bt200-370m per annum until 2019. The company expects to use internal cashflow from operations and cash proceeds from its warrants issuance to support its day-to-day operations, capex, repayments of Digital TV Licence and bank loans.
Share Price Drivers: Capital Expenditure Launch of new hit programmes. WORK expects to launch new programmes to gain higher ratings. This would allow the company to charge higher ad rates, boosting the company’s top line and earnings. Major events. WORK plans to maintain its other businesses (besides TV) to deliver constant growth. Contracts for organising any major events could act as catalysts for WORK’s share price. Rising margins. WORK’s margins will continue to improve due to better economies of scale, as most of its costs are fixed (with ROE (%) low variable costs). As a result, WORK’s earnings will improve over time and this may help re-rate the share price.
Key Risks: Intense competition. Around 91% of 2017's total revenue came from the TV business which is considered highly competitive. However, WORK has done well to gain higher ratings and expects to continue doing so. Changes in audience preferences. The business faces rapid changes in audience preferences over time. Failure to keep up may lead to lower ratings. Forward PE Band (x) Expansion into other media. Recently, social media has been gaining popularity and a higher share of the overall media market. This may have a negative impact on the TV business. WORK has started to invest in social media via Youtube, Facebook and Line TV to cope with the changes. Reliance on key personnel. The company’s TV business is driven by its key personnel, including MCs, production and creative teams. The departure of key personnel may negatively affect WORK’s ratings. PB Band (x) Company Background Workpoint Entertainment Pcl. (WORK) is in the entertainment and media businesses. Its offers a wide range of products and services including digital TV channel, TV content production, movies, publishing, event organisation, show business, animation and computer graphics.
Source: Company, DBSVTH
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Company Guide Workpoint Entertainment PCL
Key Assumptions FY Dec 2015A 2016A 2017A 2018F 2019F
Sales (Bt m) 2,388 2,634 3,853 3,523 3,631 Sales growth (%) 16.3 10.3 46.3 -8.5 3.1 Gross margin (%) 42.5 43.2 54.8 45.6 45.9 SGA/Sales (%) 31.6 31.2 22.3 21.6 20.6 Net profit margin (%) 6.7 7.4 23.3 18.9 20.4
Income Statement (Btm) FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 2,388 2,634 3,853 3,523 3,631 Cost of Goods Sold (1,372) (1,496) (1,741) (1,918) (1,964) Gross Profit 1,015 1,137 2,111 1,605 1,667 Other Opng (Exp)/Inc (754) (822) (860) (761) (749) Operating Profit 261 315 1,252 844 919 Other Non Opg (Exp)/Inc 66.4 50.6 25.0 60.8 35.1 Associates & JV Inc 14.4 2.14 (12.8) 3.52 3.63 Net Interest (Exp)/Inc (132) (113) (97.6) (55.5) (18.9) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 210 255 1,166 853 939 Tax (45.4) (52.1) (258) (171) (188) Minority Interest (0.8) (4.4) (4.4) (3.3) (3.6) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 164 199 904 678 747 Net Profit before Except. 164 199 904 678 747 EBITDA 849 917 1,754 1,492 1,559 Growth Revenue Gth (%) 16.3 10.3 46.3 (8.5) 3.1 EBITDA Gth (%) 85.2 8.1 91.2 (14.9) 4.5 Opg Profit Gth (%) (719.9) 20.5 297.3 (32.6) 8.9 Net Profit Gth (Pre-ex) (%) nm 21.4 355.2 (25.0) 10.1 Margins & Ratio Gross Margins (%) 42.5 43.2 54.8 45.6 45.9 Opg Profit Margin (%) 11.0 12.0 32.5 24.0 25.3 Net Profit Margin (%) 6.9 7.5 23.5 19.2 20.6 ROAE (%) 7.4 6.9 24.4 14.6 14.7 ROA (%) 3.1 3.6 15.2 10.6 11.8 ROCE (%) 4.5 5.3 19.2 12.2 13.2 Div Payout Ratio (%) 86.7 56.9 67.0 65.0 65.0 Net Interest Cover (x) 2.0 2.8 12.8 15.2 48.7 Source: Company, DBSVTH
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Company Guide Workpoint Entertainment PCL
Quarterly / Interim Income Statement (Btm) FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018
Revenue 1,114 1,163 769 885 841 Cost of Goods Sold (448) (464) (436) (480) (485) Gross Profit 666 700 332 405 356 Other Oper. (Exp)/Inc (200) (197) (303) (188) (208) Operating Profit 466 503 29.9 218 148 Other Non Opg (Exp)/Inc 25.7 5.95 (13.1) 4.53 12.1 Associates & JV Inc (5.4) (5.6) (3.6) 0.19 2.79 Net Interest (Exp)/Inc (22.9) (22.9) (26.1) (16.4) (14.5) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 463 480 (12.9) 206 148 Tax (89.4) (98.3) (9.1) (38.1) (29.7) Minority Interest (1.2) (1.8) (0.3) (2.4) (2.8) Net Profit 373 380 (22.2) 166 116 Net profit bef Except. 373 380 (22.2) 166 116 EBITDA 608 627 159 359 315
Growth Revenue Gth (%) 38.3 4.4 (33.9) 15.1 (4.9) EBITDA Gth (%) 61.5 3.2 (74.7) 126.8 (12.3) Opg Profit Gth (%) 84.3 7.8 (94.1) 628.3 (32.2) Net Profit Gth (Pre-ex) (%) 115.1 1.9 (105.8) (845.1) (30.2) Margins Gross Margins (%) 59.8 60.1 43.2 45.8 42.3 Opg Profit Margins (%) 41.8 43.2 3.9 24.6 17.6 Net Profit Margins (%) 33.5 32.7 (2.9) 18.7 13.7
Balance Sheet (Btm) FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 997 1,009 1,100 992 896 Invts in Associates & JVs 75.0 36.1 23.3 23.4 23.4 Other LT Assets 2,755 2,597 2,648 2,562 2,380 Cash & ST Invts 1,277 1,241 1,894 2,004 2,216 Inventory 46.7 84.8 170 187 191 Debtors 437 454 520 475 490 Other Current Assets 0.0 0.0 93.6 91.9 91.3 Total Assets 5,588 5,422 6,448 6,335 6,288
ST Debt 341 237 221 237 26.5 Creditor 391 331 476 524 537 Other Current Liab 370 389 539 201 201 LT Debt 406 579 245 159 39.2 Other LT Liabilities 1,294 900 524 337 149 Shareholder’s Equity 2,769 2,980 4,435 4,866 5,321 Minority Interests 18.1 6.28 8.52 11.8 15.5 Total Cap. & Liab. 5,588 5,422 6,448 6,335 6,288
Non-Cash Wkg. Capital (277) (181) (232) 29.1 34.9 Net Cash/(Debt) 530 425 1,428 1,608 2,151 Debtors Turn (avg days) 62.1 61.8 46.1 51.5 48.5 Creditors Turn (avg days) 184.7 139.1 117.6 136.8 142.1 Inventory Turn (avg days) 26.3 25.3 37.1 48.7 50.6 Asset Turnover (x) 0.4 0.5 0.6 0.6 0.6 Current Ratio (x) 1.6 1.9 2.2 2.9 3.9 Quick Ratio (x) 1.6 1.8 2.0 2.6 3.5 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) 134.1 94.8 170.1 196.9 789.7 Z-Score (X) 4.9 5.7 7.5 7.5 10.0
Source: Company, DBSVTH
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Company Guide Workpoint Entertainment PCL
Cash Flow Statement (Btm) FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 210 255 1,166 853 939 Dep. & Amort. 506 549 490 584 602 Tax Paid (45.4) (52.1) (258) (171) (188) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (379) (144) 41.5 (80.6) (11.0) Other Operating CF 105 (26.7) (70.9) 2.50 (40.5) Net Operating CF 397 582 1,369 1,188 1,301 Capital Exp.(net) (1,001) (774) (793) (779) (519) Other Invts.(net) (193) 16.1 (142) 9.73 4.02 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 15.0 0.0 0.0 0.0 0.0 Other Investing CF 100 (2.6) (1.8) 0.0 0.0 Net Investing CF (1,079) (760) (937) (770) (515) Div Paid (92.5) (113) (606) (441) (485) Chg in Gross Debt 585 (4.8) (9.0) 9.04 0.0 Capital Issues 1,073 199 199 199 199 Other Financing CF (864) (96.7) (275) (73.0) (290) Net Financing CF 702 (15.8) (691) (306) (576) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 19.8 (194) (260) 112 209 Opg CFPS (Bt) 1.87 1.74 3.10 2.89 2.99 Free CFPS (Bt) (1.5) (0.5) 1.34 0.93 1.78 Source: Company, DBSVTH
Target Price & Ratings History
Source: DBSVTH Analyst: Nantika WIANGPHOEM, CFA
THAI-CAC n/a Corporate Governance CG Rating (as of Oct 2017) n/a
THAI-CAC is Companies participating in Thailand's Private Sector Score Description Collective Action Coalition Against Corruption programme (Thai Declared Companies that have declared their intention to join CAC CAC) under Thai Institute of Directors (as of May 2018) are Certified Companies certified by CAC. categorised into: Score Range Number of Logo Description Corporate Governance CG Rating is based on Thai Institute of 90-100 Excellent Directors (IOD)’s annual assessment of corporate governance 80-89 Very Good practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), 70-79 Good disclosure and transparency (20%), role of stakeholders (20%), 60-69 Satisfactory equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to 50-59 Pass each company based on their scoring as follows: <50 No logo given N/A
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Company Guide Workpoint Entertainment PCL
DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends
Completed Date: 21 Aug 2018 06:16:08 (THA) Dissemination Date: 21 Aug 2018 07:46:54 (THA)
Sources for all charts and tables are DBSVTH unless otherwise specified.
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Company Guide Workpoint Entertainment PCL
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Company Guide Workpoint Entertainment PCL
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For any query regarding the materials herein, please contact Carol Wu (Reg No. AH8283) at [email protected]
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Wong Ming Tek, Executive Director, ADBSR
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Company Guide Workpoint Entertainment PCL
United This report is produced by DBS Vickers Securities (Thailand) Co Ltd which is regulated by the Securities and Exchange Kingdom Commission, Thailand.
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Company Guide Workpoint Entertainment PCL
DBS Regional Research Offices
HONG KONG MALAYSIA SINGAPORE DBS Bank (Hong Kong) Limited AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 65 6878 8888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 65 65353 418 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand
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