Corporate Access Day Workpoint Entertainment PCL

Version 2 | Bloomberg: WORK TB | Reuters: WORK.BK Refer to important disclosures at the end of this report DBS Group Research . Equity 6 Jul 2016

BUY Strong media play rd Last Traded Price: Bt38.75 (SET : 1,450.07) 3 ranking in Thailand’s Digital TV space. Price Target : Bt45.00 (17% upside) WORK has been continuously climbing the rating’s ladder and is Potential Catalyst: New hit programmes and improving margins now ranked third in Thailand’s Digital TV space. Its rating Where we differ: Below consensus as we assume partial exercise of increased to 1.42% in May 16 from c.0.85% in 2015. WORK is warrants well recognised by the Thai viewers with regard to its creativity

Analyst and content quality. Many of its programmes, especially variety Nantika WIANGPHOEM +66 26577836 [email protected] shows, game shows and quiz shows, are very popular. The key Chanpen SIRITHANARATTANAKUL +662 657 7824 concept of WORK’s programmes revolves around knowledge, [email protected] wit, fun and entertainment. With its strong position, we believe

that WORK will continue to gain higher ratings and maintain its third position. Price Relative More diversified audience base. WORK’s programmes are Bt Relative Index designed to serve all types of audiences, regardless of age, 265 63.3 gender and geography. As a result, WORK seems to have more 53.3 215 potential to expand its audience base vs other channels that 43.3 165 focus on only one specific group. Hence, it is likely to fall in the 33.3 115 radar of ad agencies that are interested in purchasing ad time 23.3 for reaching out to a generic audience group. 13.3 65 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 More than doubling earnings next year (2015-2017F). We Workpoint Entertainment PCL (LHS) Relative SET INDEX (RHS) expect WORK’s earnings to continuously record new highs in

Forecasts and Valuation the coming years. The robust growth will be driven by i) higher FY Dec (Btm) 2014A 2015A 2016F 2017F average ad rates, from c.Bt36,000 per minute in 2015 to Revenue 2,053 2,388 3,149 3,495 Bt50,000 in 2016 and Bt55,000 in 2017 (other top two leaders’ EBITDA 458 849 999 1,199 average ad rates range from c.Bt70,000-85,000 per minute), Pre-tax Profit (33.8) 210 358 553 Net Profit (16.0) 164 281 436 thanks to the increase in WORK’s rating, and ii) better Net Pft (Pre Ex.) (16.0) 164 281 436 economies of scale, as c.90% of its costs are fixed (with low EPS (Bt) 0.0 0.39 0.67 1.02 variable costs) – which will boost its margin from 42.5% in EPS Pre Ex. (Bt) 0.0 0.39 0.67 1.02 2015 to 44% in 2016 and 44.3% in 2017. As a result, we EPS Gth (%) nm nm 69 53 EPS Gth Pre Ex (%) nm nm 69 53 believe WORK will deliver solid earnings growth of 72% and Diluted EPS (Bt) 0.0 0.39 0.67 1.02 55% in FY16 and FY17, respectively. Net DPS (Bt) 0.03 0.34 0.47 0.71 BV Per Share (Bt) 4.31 6.77 7.30 7.98 PE (X) nm 98.3 58.2 38.0 Valuation: PE Pre Ex. (X) nm 98.3 58.2 38.0 Our target price of Bt45 is based on DCF valuation with a P/Cash Flow (X) 24.0 27.2 21.3 17.2 EV/EBITDA (X) 32.9 18.4 16.1 13.5 WACC of 8.8%.

Net Div Yield (%) 0.1 0.9 1.2 1.8 Key Risks to Our View: P/Book Value (X) 9.0 5.7 5.3 4.9 Net Debt/Equity (X) 0.1 CASH CASH CASH Intense competition, changes in audience preferences, market- ROAE (%) (1.0) 7.3 9.5 13.4 share expansion of other types of media and reliance on key Earnings Rev (%): N/A N/A personnel. Consensus EPS (Bt): 0.86 1.27 At A Glance Other Broker Recs: B: 14 S: 0 H: 0 Issued Capital (m shrs) 417 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P Mkt. Cap (Btm/US$m) 16,064 / 460 Major Shareholders (%) Phanya Nirunkul (%) 25.91 Prapas Cholsaranon (%) 25.91 Nortrust Nominees Ltd. (%) 10.74 Free Float (%) 33.75

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Workpoint Entertainment PCL

3m Avg. Daily Val (US$m) 0.74 ICB Industry : Consumer Services / Media Top 3 highest-rating channels % 5.0 4.5 CRITICAL DATA POINTS TO WATCH 4.0 3.33 3.5 3.0 Earnings Drivers: 2.5 1.91 Higher average ad rates from rising rating and increase in hit 2.0 1.14 1.5 0.97 0.96 0.9 0.73 0.75 0.83 0.88 programmes. Normally, WORK sells ad time to agencies under 1.0 0.45 0.51 1.42 0.24 0.34 packages whose rates will be fixed under agreements. However, 0.5 0.0 in 4Q15, WORK has four programmes whose ad time was sold separately from the standard packages and based on the Cost Per Rating Point (CPRP). The ad rates for these programmes (the WORK prime time) ranged from 150,000-200,000 per minute. In 1Q16, there were two additional programmes that were sold 2015 sales breakdown separately – “Mic Thongkam Kids” and “” – due to their solid ratings. We expect more programmes such Concerts 7% as “SuperMuM” and “Teng-Nong Witthaya” to be sold separately in the future. Given WORK’s rating uptrend, we Movies forecast its average ad rate per minute to increase from 1% c.Bt36,000 in 2015 to Bt50,000 in 2016 and Bt55,000 in 2017 (other top two leaders’ average ad rates range from c.Bt70,000- Publication Television 0% programs 85,000 per minute). 87% Events New programmes coming online continuously. To gain higher 5% ratings and audience share, it plans to launch new programmes. Animation The four new programmes lined up for 2H16 are i) “King of 0% Mask Singer (singing show), ii) “Diew Duan Mic” (talk show), iii) “Goal” (football reality show), and iv) the new season of “Mic Thongkam” (singing show, season 5). Each programme is Gross margins (%) expected to gain high ratings, especially the new big format 50.0 44.0 44.3 44.6 programmes like “King of Mask Singer” – that WORK expects 45.0 42.5 ratings of above 4%. Hence, its continuous efforts of launching 40.0 38.2 new programmes to gain higher ratings will allow the company 35.0 to charge higher ad rates on a sustainable basis. As a result, the 30.2 company’s revenue will continue growing. 30.0

Benefits from better economies of scale. c.90% of costs come 25.0 from fixed costs and relatively revenue independent, including 20.0 amortisation expenses for its digital TV licence, broadcast rental 2013A 2014A 2015A 2016F 2017F 2018F Gross margin (%) fees, production costs and amortisation expenses for purchased contents. Thus, we believe that by growing its top-line, WORK Revenue and net margins will enjoy the benefits from better economies of scale moving Bt m forward. We expect its gross margin to improve from 42.5% in 4,500 55.0 4,000 3,839 2015 to 44% in 2016 and 44.3% in 2017. 3,480 45.0 3,500 3,134 3,000 35.0 Expansion into social media. As more media companies foray 2,388 2,500 2,167 2,053 25.0 into the social networks due to their popularity (in view of the 2,000 12.2 13.1 increase in the number of users), WORK has also expanded its 1,500 10.9 15.0 6.7 8.6 on-air channels via social networks such as Youtube, Facebook 1,000 -0.8 5.0 and Line TV to take advantage of opportunities that might arise 500 0 -5.0 in the social network arena. However, due to the limited target 2013A 2014A 2015A 2016F 2017F 2018F groups for social networks, most agencies still prefer to use TV Sales Net margin (%) as the first choice to promote their services and products. Source: Company, DBS Vickers

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Hence, the company believes that social media will grow in Thailand, though not rapidly in the next few years..

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Workpoint Entertainment PCL

Leverage & Asset Turnover (x) Balance Sheet: 0.7 Despite a net cash balance of Bt326m as of end-Dec 16, WORK 0.60 0.7 has Digital TV Licence Payable of Bt1,515.6m which could be 0.50 0.6 considered a major liability. The Digital TV Licence Payable will 0.40 0.6 be repaid by c.Bt200-370m per annum until 2020. The 0.30 company expects to use internal cashflow from operations and 0.20 0.5 cash proceeds from its warrants issue (20,861,107 shares at an 0.5 exercise price of Bt38.1) to support its day-to-day operations, 0.10 0.00 0.4 capex, and repayments of Digital TV License Payable and bank 2014A 2015A 2016F 2017F loans. WORK paid a dividend of Bt0.34 per share in 2015. We Gross Debt to Equity (LHS) Asset Turnover (RHS) expect THB0.47 DPS in 2016 and THB0.71 DPS in 2017, Capital Expenditure assuming 70% dividend payout ratio and implying dividend Btm yields of 1.2% in 2016 and 1.8% in 2017. 1,200.0 1,000.0 Share Price Drivers: 800.0 Launch of new hit programmes. WORK expects to 600.0 continuously launch new programmes to gain higher ratings. 400.0

This allows the company to charge higher ad rates which will 200.0 help boost the company’s top-line and earnings. 0.0 Major events awarded. WORK plans to maintain its other 2013A 2014A 2015A 2016F 2017F Capital Expenditure (-) businesses (besides its television programme business) to deliver constant growth. If WORK manages to win the ROE (%) organizing of any unexpected major event, this could act as a 12.0% catalyst for its share price. 10.0% Rising margins. WORK’s margins will continue improving due 8.0% to better economies of scale, as most of its costs are fixed (with low variable costs). As a result, WORK’s earnings will 6.0% improve over time and this can help re-rate the share price. 4.0% 2.0%

Key Risks: 0.0% 2014A 2015A 2016F 2017F Intense competition. C.87% of 2015 total revenue comes from the TV media business which is considered highly competitive. Forward PE Band (x) However, WORK has done well to gain higher ratings and PE (x) expects to continue gaining higher rating. 70 +2 sd Change in audience preferences. The business faces the risk of 65 60 rapid changes in audience preference and fashion from time to 55 +1 sd time. Hence, it might face lower ratings if it fails to keep up. 50 Expansion into other media. Recently, social media has gained 45 Mean popularity and a higher share of the overall media market. The 40 35 -1 sd increase in social media market share will negatively affect the 30 TV media business. Thus, WORK has started to invest in social 25 -2 sd media via Youtube, Facebook and Line to cope with the 20 changes. 2015 2016 Reliance on key personnel. The company’s TV business is driven by its key personnel, including MCs, and production and PB Band (x) creative teams. Thus, the departure of such key personnel might (x) negatively affect WORK’s rating. 14.0

12.0

Company Background 10.0 Workpoint Entertainment Pcl. is engaged in the entertainment +2sd: 8.77x 8.0 and media businesses. Its offers a wide range of products and +1sd: 7.15x 6.0 services including digital TV channel, TV content production, Avg: 5.54x movies, publishing, event organisation, show business, 4.0 -1sd: 3.92x animation and computer graphics. 2.0 -2sd: 2.3x Jul-12 Jul-13 Jul-14 Jul-15 Jul-16

Source: Company, DBS Vickers

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Key Assumptions FY Dec 2013A 2014A 2015A 2016F 2017F

Sales (Bt m) 2,167 2,053 2,388 3,149 3,495 Sales growth (%) n.a. -5.3 16.3 31.9 11.0 Gross margin (%) 38.2 30.2 42.5 44.0 44.3 SGA/Sales (%) 23.3 32.2 31.6 30.0 29.8 Net profit margin (%) 10.9 -0.8 6.7 8.7 12.1

Segmental Breakdown FY Dec 2013A 2014A 2015A 2016F 2017F

Revenues (Btm) Television programs 1,726 1,843 2,079 2,809 3,123 Publication 18 5 8 10 11 Animation and computer 60 14 5 5 6 Moviesgraphic 29 21 20 21 22 Concerts and plays 14 0 168 185 203 Event marketing 321 170 108 119 131 Total 2,167 2,053 2,388 3,149 3,495 (%) Television programs 80% 90% 87% 89% 89% Publication 1% 0% 0% 0% 0% Animation and computer 3% 1% 0% 0% 0% Moviesgraphic 1% 1% 1% 1% 1% Concerts and plays 1% 0% 7% 6% 6% Event marketing 15% 8% 5% 4% 4% Total 100% 100% 100% 100% 100%

Income Statement (Btm) FY Dec 2013A 2014A 2015A 2016F 2017F

Revenue 2,167 2,053 2,388 3,149 3,495 Cost of Goods Sold (1,340) (1,434) (1,372) (1,763) (1,947) Gross Profit 827 619 1,015 1,386 1,548 Other Opng (Exp)/Inc (504) (661) (754) (1,045) (1,042) Operating Profit 323 (42.2) 261 341 506 Other Non Opg (Exp)/Inc 18.5 57.1 66.4 98.3 105 Associates & JV Inc 0.0 52.0 14.4 19.0 21.1 Net Interest (Exp)/Inc (10.1) (101) (132) (100) (79.0) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 331 (33.8) 210 358 553 Tax (84.1) 19.1 (45.4) (75.4) (115) Minority Interest (8.6) (1.4) (0.8) (1.3) (2.1) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 238 (16.0) 164 281 436 Net Profit before Except. 238 (16.0) 164 281 436 EBITDA 537 458 849 999 1,199 Growth Revenue Gth (%) 1.5 (5.3) 16.3 31.9 11.0 EBITDA Gth (%) (14.7) (14.6) 85.2 17.7 20.1 Opg Profit Gth (%) (38.4) nm nm 30.4 48.6 Net Profit Gth (Pre-ex) (%) (42.8) nm nm 71.9 55.2 Margins & Ratio Gross Margins (%) 38.2 30.2 42.5 44.0 44.3 Opg Profit Margin (%) 14.9 (2.1) 11.0 10.8 14.5 Net Profit Margin (%) 11.0 (0.8) 6.9 8.9 12.5 ROAE (%) N/A (1.0) 7.3 9.5 13.4 ROA (%) N/A (0.4) 3.1 5.0 7.9 ROCE (%) N/A (1.3) 4.5 5.7 8.8 Div Payout Ratio (%) 0.0 N/A 86.7 70.0 70.0 Net Interest Cover (x) 31.9 (0.4) 2.0 3.4 6.4 Source: Company, DBS Vickers

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Quarterly / Interim Income Statement (Btm) FY Dec 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016

Revenue 427 679 641 641 547 Cost of Goods Sold (275) (386) (366) (345) (319) Gross Profit 152 293 274 296 228 Other Oper. (Exp)/Inc (155) (160) (187) (251) (181) Operating Profit (3.4) 133 86.7 45.4 47.2 Other Non Opg (Exp)/Inc 16.2 9.60 (3.8) 44.4 22.3 Associates & JV Inc (9.6) 8.60 4.52 10.9 (1.9) Net Interest (Exp)/Inc (33.0) (13.1) (14.4) (72.0) (31.8) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit (29.8) 138 73.0 28.7 35.7 Tax 5.18 (26.9) (13.9) (9.7) (6.3) Minority Interest (0.5) 2.37 (0.6) (2.1) (0.7) Net Profit (25.1) 113 58.5 16.9 28.7 Net profit bef Except. (25.1) 113 58.5 16.9 28.7 EBITDA 125 237 255 232 199

Growth Revenue Gth (%) (21.0) 58.9 (5.7) 0.1 (14.7) EBITDA Gth (%) 24.0 89.8 7.9 (9.3) (14.3) Opg Profit Gth (%) 83.6 nm (34.7) (47.6) 4.0 Net Profit Gth (Pre-ex) (%) 50.6 nm (48.4) (71.2) 70.5 Margins Gross Margins (%) 35.6 43.2 42.8 46.2 41.7 Opg Profit Margins (%) (0.8) 19.6 13.5 7.1 8.6 Net Profit Margins (%) (5.9) 16.7 9.1 2.6 5.3

Balance Sheet (Btm) FY Dec 2013A 2014A 2015A 2016F 2017F

Net Fixed Assets 686 761 984 997 995 Invts in Associates & JVs 0.0 74.7 74.4 74.5 74.5 Other LT Assets 523 2,881 2,783 2,866 2,706 Cash & ST Invts 288 857 1,272 960 969 Inventory 81.2 78.2 63.3 81.3 89.8 Debtors 720 376 438 578 641 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 2,299 5,028 5,614 5,556 5,476

ST Debt 367 288 141 141 141 Other current Liabilities and Other LT Liabilities Creditor 288 485 433 557 615 include Digital TV License Other Current Liab 22.1 233 370 375 375 Payable LT Debt 32.2 694 606 497 388 Other LT Liabilities 53.9 1,614 1,237 882 521 Shareholder’s Equity 1,471 1,658 2,808 3,085 3,414 Minority Interests 64.5 55.8 19.2 20.5 22.6 Total Cap. & Liab. 2,299 5,028 5,614 5,556 5,476

Non-Cash Wkg. Capital 491 (264) (301) (272) (258) Net Cash/(Debt) (111) (126) 525 322 441 Debtors Turn (avg days) N/A 97.4 62.2 58.9 63.7 Creditors Turn (avg days) N/A 135.4 193.5 147.7 154.8 Inventory Turn (avg days) N/A 27.9 29.8 21.6 22.6 Asset Turnover (x) NM 0.6 0.4 0.6 0.6 Current Ratio (x) 1.6 1.3 1.9 1.5 1.5 Quick Ratio (x) 1.5 1.2 1.8 1.4 1.4 Net Debt/Equity (X) 0.1 0.1 CASH CASH CASH Net Debt/Equity ex MI (X) 0.1 0.1 CASH CASH CASH Capex to Debt (%) 108.5 67.1 134.1 121.4 146.5 Z-Score (X) 0.0 0.0 0.0 NA NA

Source: Company, DBS Vickers

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Cash Flow Statement (Btm) FY Dec 2013A 2014A 2015A 2016F 2017F

Pre-Tax Profit 331 (33.8) 210 358 553 Dep. & Amort. 196 391 506 541 567 Tax Paid (84.1) 19.1 (45.4) (75.4) (115) The capex was high due to Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 an additional capex for new Chg in Wkg.Cap. (300) 326 (190) (36.6) (19.7) broardcast system and SAP Other Operating CF (206) (81.5) 111 (19.7) (20.6) system Net Operating CF (63.9) 621 592 767 965 Capital Exp.(net) (433) (659) (1,001) (774) (774) Other Invts.(net) 63.5 (24.6) (193) 1.82 2.55 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 15.0 0.0 0.0 Other Investing CF (53.2) 5.41 100 0.0 0.0 Net Investing CF (422) (678) (1,079) (772) (771) Div Paid (154) 0.0 (92.5) (197) (305) 0.0 Chg in Gross Debt 329 1,120 585 0.0 Assume partial exercise of Capital Issues 39.0 200 1,073 199 199 warrant from 2016-2019 Other Financing CF (11.4) (694) (864) (307) (74.1) Net Financing CF 202 626 702 (305) (181) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (284) 568 214 (310) 12.6 Opg CFPS (Bt) 0.92 0.77 1.88 1.90 2.30 Free CFPS (Bt) (1.9) (0.1) (1.0) 0.0 0.45 Source: Company, DBS Vickers

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Workpoint Entertainment PCL

DBS Vickers 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

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Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

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