Workpoint Entertainment - WORK Earnings downgrade despite rosier outlook for 2HCY13 Bloomberg │ Reuters Equities Research WORK TB │WORK.BK 27 August 2013

Report type: Company Update Workpoint Entertainment Rating 1.00 Buy Company Overview - Previous Rating 2.00 Accumulate WORK is mainly engaged in production of TV programs and Target Price (Bt) 33.75 - Previous Target Price (Bt) 55.00 it also operates in other media businesses including Closing Price (Bt) 27.75 publishing, event marketing, concerts & showbiz, movie and Expected Capital Gains (%) 21.6% satellite TV. Expected Dividend Yield (%) 4.9% Expected Total Return (%) 26.5% • WORK reported 2QCY13 net profit drop of 37.9% y-y as Raw Beta (Past 2yrs w eekly data) 1.47 a result of escalating costs and SG&A expenses especially Market Cap. (USD mn) 223 from satellite TV business, which swung to a loss from a Enterprise Value (USD mn) 215 year-ago profit. Market Cap. (Bt mn) 7,135 • In our view, 2HCY13 is expected to be significantly better Enterprise Value (Bt mn) 6,892 3M Average Daily T/O (mn) 0.2 than 1HCY13 for WORK on the back of a likely improvement 52 week range 25.25 - 64.25 at most of its businesses especially event marketing, movie Closing Price in 52 week range and satellite TV businesses. 0% 50% 100% • Despite the prospect of a strong recovery in 2HCY13, the 70.00 6 bigger-than-expected profit drop in 1HCY13 gives us an 60.00 5 excuse to trim our CY13 net profit outlook for WORK to 50.00 4 Bt408mn. 40.00 3 • At current prices, we rate WORK shares a ‘BUY’ with a 30.00 2 downwardly revised CY13 target price of Bt33.75/share. 20.00 1

10.00 0 What is the news? A u g -1 2 S e p -1 2 O c t -1 2 N o v-1 2 D e c-1 2 Ja n -1 3 F e b -1 3 M a r-1 3 A p r-1 3 M a y-1 3 Ju n -1 3 J u l -1 3 A u g -1 3 Despite top-line revenue growth, WORK reported 2QCY13 net

profit drop of 37.9% y-y to Bt85.40mn as a result of escalating Volume, mn WORK TB EQUITY SETI rebased costs and SG&A expenses especially from satellite TV business due to new TV channel launch and higher license amortization Major Shareholders (%) charges on new contents in preparation for the upcoming digital 1. Mr. Prapas Cholsaranon 36.1 2. Mr. Phanya Nirunkul 35.8 TV auction. 3. HSBC () Nominees Pte Ltd. 4.3

How do we view this? CG Report - 2012

In our view, 2HCY13 is expected to be significantly better than (Good) 1HCY13 for WORK thanks to (i) a rising volume of works in Key Financial Summary event marketing businesses, (ii) higher ad utilization rate for new FYE 12/11 12/12 12/13F 12/14F satellite TV channel and programming reshuffle for Workpoint Revenue (Btmn) 1,835 2,136 2,512 2,896 TV to cut costs, (iii) a new movie to be released in 2HCY13, Net Profit (Btmn) 327 404 408 578 (iv) big-event ‘Khun Phra Chuay’ concert and ‘3 Cha EPS (Bt) 1.31 1.57 1.59 2.25 Carniwow’ stage play, and (v) the launch of new pocket books Net Profit, adj. (Btmn) 327 404 408 578 EPS, adj. (Bt) 1.31 1.57 1.59 2.25 in publishing business. Despite the prospect of a strong P/E (X),adj. 21.2 17.7 17.5 12.3 recovery in 2HCY13, the bigger-than-expected profit drop in BVPS (Bt) 4.81 5.46 5.56 6.12 1HCY13 gives us an excuse to trim our CY13 net profit P/B (X) 5.8 5.1 5.0 4.5 outlook for WORK to Bt408mn. DPS (Bt) 1.00 1.40 1.35 1.91 Div. Yield (%) 3.6 5.0 4.9 6.9 Investment Actions? Source: Bloomberg, PSR est. *All multiples & yields based on current market price At current prices, we rate WORK shares a ‘BUY’ with a downwardly revised CY13 target price of Bt33.75/share Valuation Method based on a PEG of 1x. PEG'13 (1x)

Analyst Siam Tiyanont Securities Investment Analyst #17970 Tel. 662 -2-635 -1700 Ext. 483

Ref. No.: CO2556_0690 1 of 5 Workpoint Entertainment - WORK Thailand Equities Research 27 August 2013

2QCY13 net profit down 37.9% y-y also a ‘Khun Phra Chuay’ concert to be held in Oct-Nov 2013. WORK reported 2QCY13 net profit drop of 37.9% y-y to In movie business, there will be a romantic comedy ‘Oh! My Bt85.4mn as a result of escalating costs and SG&A expenses Ghost’ to be released in 2HCY13 against the previous plan especially from satellite TV business. for three movie releases and none in 1HCY13 and the release of the ‘Yak the Giant King’ earlier scheduled to hit 6,000 In this period, total revenue rose by 9.0% y-y to Bt556mn as (i) theaters in in 3QCY13 has been delayed to CY14. In revenue from TV production business leapt 11.0% y-y due publishing business, WORK plans to launch 5-6 new pocket largely to a 68.2% jump in satellite TV ad revenue growth and books in 2HCY13 against none in 1HCY13. a 5.6% rise in free-to-air TV ad revenue growth, (ii) revenue from event marketing business surged 32.2% y-y thanks to Plan in place to bid for two digital TV channels works during the Songkran Festival, and (iii) there was no WORK sticks to its plan to bid for two digital TV channels: revenue from concert and showbiz business in this period one children channel, possibly through a joint venture and against Bt13.14mn in 2QCY12. Costs and SG&A expenses one SD variety channel. However, the digital TV auction may shot up 39.7% and 29.9% y-y respectively due chiefly to (i) the be delayed to Dec 2013-Jan 2014 from Oct-Nov 2013 as launch of a new Channel 6 in satellite TV business, which had previously planned by the National Broadcasting and been on a test run since 1QCY13 and started selling Telecommunications Commission (NBTC). There also commercials in Jun 2013, and (ii) the addition of new TV remain a number of issues to watch, especially whether program on Workpoint TV, which pushed license amortization there will be the ‘must carry’ rule to get rid of black screen charges and production costs higher and drove satellite TV problems and network rental fees which have not yet been business into a loss from a year-ago profit, a major downward announced. drag on WORK’s bottom-line, and (ii) license costs for new contents in preparation for the upcoming digital TV auction. Earnings downgrade for CY13 Notwithstanding the strong recovery prospects for 2HCY13, In 1HCY13, WORK posted a net profit drop of 44.3% y-y to the bigger-than-expected profit drop in 1HCY13 gives us an Bt118.34mn, prompting it to skip an interim dividend payment excuse to trim our CY13 net profit outlook for WORK to for the first time since 2005. Bt408mn from a previous view of Bt536mn. Under the new estimates, we cut our CY13 revenue growth forecast for 2HCY13 seen significantly better than 1HCY13 WORK to 17.6% y-y to Bt2,512mn and we assume costs and In our view, 2HCY13 is likely to be significantly better than SG&A expenses will stay high. We also trim our CY13 target 1HCY13 on the back of a likely improvement at most of its price for WORK to Bt33.75/share based on CY13-CY14 businesses, especially event marketing, movie and satellite PEG of 1x. Despite earnings and target price cuts, we rate TV businesses. In 2HCY13, event marketing business is WORK shares a ‘BUY’ as the new target still offers more expected to be the brightest spot for WORK thanks to than 20% upside from current trading levels. ‘Thailand’s Got Talent Season 3,’ ‘The Voice 2,’ and ‘Roy Mua Sang Muang,’ all of which are forecast to generate combined revenues of around Bt300mn and a lineup of potential five events worth a combined value of Bt100mn with negotiations currently underway for more new works. Current backlog is around Bt400mn against 1HCY13 event marketing revenue of Bt75mn. In free-to-air TV business, the ‘Supapburus Wong Kam Lao’ will be replaced by ‘The Band’ in Oct and the ‘Office Pichit Jai’ has been replaced by ‘Carabao the Series’ in Aug with a change in airtime-based to airtime and sponsor-based basis, a move that would help lift revenue. WORK also acquired broadcasting rights for FIVB Women’s Volleyball World Championship for three years with competition this year to be held in on Sep 4-8. WORK would join hands with to broadcast the 2013 tournament. In satellite TV business, Channel 6, which started selling commercials in Jun is expected to generate revenue of between Bt50mn-Bt60mn this year. Free-to-air TV programs including the FIVB Women’s Volleyball World Championship tournament and ‘The Band’ will also be rerun on Workpoint TV. In addition, Workpoint TV has also replaced some TV programs produced by outside producers with a re-run of earlier broadcast programs in a bid to reduce costs. In concert and showbiz business, WORK has formed a 50-50 joint venture with DNA Fresh Air Festival to organize the ‘3 Cha Carniwow’ in 50 provinces across Thailand from Nov 9, 2013 to May 11, 2014. Around 8-10 ‘3 Cha Carniwow’ shows will be held this year. The whole ‘3 Cha Carniwow’ project is expected to generate revenue of between Bt300mn-Bt350mn. If successful, WORK plans to organize the project in the following years. There will

2 of 5 Workpoint Entertainment - WORK Thailand Equities Research 27 August 2013

Ratings History

70 Target Price Source: Bloomberg, PSR Market Price 60 50

40 30

20

10

0 Jun-12 S e p -1 2 Dec-12 Mar-13 Jun-13 S e p -1 3 Dec-13 Mar-14 Jun-14

1 2 3 4 5

Phillip Group Rating System Total Returns Recommendation Rating > +20% Buy 1 +5% to +20% Accumulate/Trading Buy 2 -5% to +5% Neutral 3 -5% to -20% Reduce/Trading Sell 4 >-20% Sell 5

Remarks

We do not base our recommendations entirely on the above quantitative return bands. We

consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation

3 of 5 Workpoint Entertainment - WORK Thailand Equities Research 27 August 2013

Fundamental: Name Analyst Reg No. Tel Sector Sasikorn Charoensuwan, CFA, CAIA Capital Market Investment Analyst#9744 662 635 1700#480 Consumer, Commerce Rutsada Tweesaengsakulthai Securities Investment Analyst#17972 662 635 1700#482 ICT, Energy, Health Care Danai Tunyaphisitchai, CFA Capital Market Investment Analyst #2375 662 635 1700#481 Construction Materials, Property Development Naree Apisawaittakan Securities Investment Analyst #17971 662 635 1700#484 Agro & Food, Electronics Siam Tiyanont Securities Investment Analyst #17970 662 635 1700#483 Transportation, Media & Publishing, Tourism Ornmongkol Tantitanatorn Capital Market Investment Analyst #34100 662 635 1700#491 Automotive, Energy, Packaging Adisorn Muangparnchon Securities Investment Analyst #18577 662 635 1700#497 Banking, Securities & Finance, Insurance Chantaramanee Tavivorakiat Assistant Analyst Vichuda Siriployprakray Assistant Analyst

Strategy: Teerada Charnyingyong Securities Investment Analyst #9501 662 635 1700#487 Chutikarn Santimetvirul Derivatives Investment Analyst #37928 662 635 1700#491 Werajak Jungkiatkajorn Capital Market Investment Analyst #28087 662 635 1700#495 Chonlada Lertsanguansinchai Assistant Analyst Rittiporn Songsermsawad Assistant Analyst

Technical: Sasima Hattakitnikorn Securities Investment Analyst #8328 662 635 1700#490 Kanoksak Vutipan Capital Market Investment Analyst #32423 662 635 1700#485

Database & Production: Manunpat Yuenyongwatanakorn Sutiporn Oupkaew Mathurin Karnsomprot

Translation: Chaiyot Ingkhasorarat Naowarat Angurasuchon

Results Presentation The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the Office of the Score Range Number of Logo Securities and Exchange Commission. The survey of the IOD is based on the Less than 50 No logo given information of a company listed on the Stock Exchange of Thailand and the Market for Alternative disclosure to the public and able to be accessed by a 50 - 59 general public investor. The results, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. 60 - 69 The survey result is as of the date appearing in the Corporate Governance Report 70 - 79 of Thai Listed Companies. As a result, the survey result may be changed after that data. Phillip Securities (Thailand) of securities company does not confirm nor 80 - 89 certify the accuracy of such survey result. 90 - 100

4 of 5 Workpoint Entertainment - WORK Thailand Equities Research 27 August 2013

Bangkok Offices Head Office 15th Fl., Vorawat Bldg. Tel : 0 2635 1700 , 0 2268 0999 Srinakarindr 17th Fl., Modernform Tower Tel : 0 2722 8344-53 Viphavadi 15th Fl., Lao Peng Nguan Tower 1 Tel : 0 2618 8400 Yaowarat 19th Fl., Kanchanadhat Bldg. Tel : 0 2622 7833 Bangkapi 1 8th Fl., The Mall Office Tower-Bangkapi Tel : 0 2363 3263 Bangkapi 2 9th Fl., The Mall Office Tower-Bangkapi Tel : 0 2363 3269 Hua Lumphong 4th Fl., Tang Hua Pak Bldg., 320 Rama 4 Rd. Tel : 0 2639 1200 Rangsit G Fl., Room#PLZ.G.SHP065A Future Park Rangsit Tel : 0 2958 5040 Sindhorn 19th Fl., Sindhorn Tower 3 Building, Tel : 0 2650 9717 Siam Discovery 11st Floor, Unit A2, Siam Tower,Tel : 02 658 0776

Provincial Offices Chaing Mai 313/15 Moo6 Chaing Mai – Lamphun Nong Hoi, Tel 053-141969 Khon Kaen 4th Fl., Kow Yoo Hah Bldg.Tel : 0 4332 5044-8 Khon Kaen - Rim Bueng 3rd Fl., Arokaya Bldg., Tel : 0 4322 6026 Phisanulok 2nd Fl., Thai Sivarat Bldg., Tel : 0 5524 3646 Had Yai 4th Fl., Southland Rubber Bldg., Tel : 0 7423 4095-99110 Had Yai - Petkasem 3rd Fl., Unit 3D, Redar Group Bldg., Tel : 0 7422 3044 Suratthan 62/9 Donnok Rd., Tel : 077 206 131 Chumporn Investor Center 25/45 Krom Luang Chumporn Rd.,Tel : 0 7757 0652-3

Overseas Offices SINGAPORE Phillip Securities Pte Ltd Raffles City Tower Tel : (65) 6533 6001 www.poems.com.sg Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway, Tel (852) 22776600 www.phillip.com.hk Phillip Capital Management Sdn Bhd, Block B Level 3 Megan Avenue II Tel (603) 21628841 www.poems.com.my JAPAN PhillipCapital Japan K.K. Nagata-cho Bldg., 8F, Tokyo Tel (81-3) 35953631 www.phillip.co.jp PT Phillip Securities Indonesia ANZ Tower Level 23B, Tel (62-21) 57900800 www.phillip.co.id CHINA Phillip Financial Advisory (Shanghai) Co. Ltd Ocean Tower Unit 2318 Tel (86-21) 51699200 www.phillip.com.cn King & Shaxson Capital Limited 3rd Flr, 35 Rue de la Bienfaisance Tel (33-1) 45633100 www.kingandshaxson.com King & Shaxson Capital Limited 6th Flr, Candlewick House, Tel (44-20) 7426 5950 www.kingandshaxson.com UNITED STATES Phillip Futures Inc The Chicago Board of Trade Building Tel +1.312.356.9000 AUSTRALIA PhillipCapital Australia Level 37, Collins Street, Melbourne, Tel (613) 96298380 Fwww.phillipcapital.com.au SRI LANKA Asha Phillip Securities Ltd Level 4, Millennium House, Tel: (+94) 11 2429 100 [email protected] TURKEY Hak Menkul Kiymetler A. Ş Dr.Cemil Bengü Cad. Tel: (+90) (212) 296 84 84 (pbx) [email protected] PhillipCapital (India) Private Limited No. 1, C ‐ Block, 2nd Floor,Modern Center , Jacob Circle, K. K. Marg, Mahalaxmi Mumbai 400011 Tel: (9122) 2300 2999 Website: www.phillipcapital.in DUBAI PhillipCapital (India) Pvt Ltd.601, White Crown Building Plot no 58, Sheikh Zayed Road P.O, Box 212291, Dubai UAE. Mahalaxmi Mumbai 400011 Tel: (9122) 2300 2999 Website: www.phillipcapital.in CAMBADIA Building No71, St 163, Sangkat Toul Svay Prey I, Khan Chamkarmorn, Phnom Penh, Kingdom of Tel: (855) 23 217 942 Website: www.kredit.com.kh

The information contained herein is based on sources which Phillip Securities (Thailand) believes reliable. We do not guarantee its accuracy or completeness. Opinions and estimates expressed herein are subject to change without notice. This report is for information only and should not be construed as an offer or solicitation for the purchase or sale of any securities referred to herein. We accept no liability for any loss, direct or indirect, from the use of this document. The directors and/or employees of Phillip Securities and or its associates may have an interest in the securities mentioned in the securities mentioned herein

5 of 5