Media Sector

September 1, 2015 OVERWEIGHT Media Sector

Stay tuned to Workpoint1

• Expect 2.7% ADEX growth in FY15F, in line with GDP, and 12% growth in FY16F outpacing GDP growth of 3.2% • WORK’s rating double that of new entrants and to reach 1.5 in FY16F, led by strong coverage through PSI and content Thailand Industry Focus expertise • OVERWEIGHT, prefer WORK to RS, but both would benefit from government stimulus measures

Expect ADEX growth to improve in 2016 Based on historical data, ADEX growth normally shows a high correlation to GDP. Based on 2015 GDP forecasts of 2.7%, we assume ADEX to grow at the same pace. This is lower than the street’s 4.5% forecast. We expect 2016 ADEX growth to improve to

12% and rise to 0.85% of Thai nominal GDP from 0.8% in FY14- Worrapong TUNTIWUTTHIPONG SECTOR UPDATE | 15F. The better outlook is based on expected higher CCI and 662 - 659 7000 ext 5016 consumer spending from government economic stimulus measures. [email protected]

WORK to be the real contender to Ch. 3 and Ch. 7 Sector relative performance to SET Since the beginning of the DTV platform, WORK’s rating has % Index increased steadily and is now in the top three at 1.0, almost double 15.0 SETENTER rel to SET SET Index (RHS) 1650 1600 that of Ch. 8 (RS) of 0.6. This was primarily due to higher 10.0 investment, expertise in content, and an advantage of being the first 1550 5.0 1500 channel on PSI (satellite platform). We see intense competition to 1450 0.0 remain and expect RS to increase its content investment budget to 1400 gain audience share and rating. However, this could have an -5.0 1350 1300 adverse impact on RS due to its weaker balance sheet. At the end of -10.0 1250 the game, we see WORK as a real contender to Ch. 3 and Ch. 7 and -15.0 1200 expect rating to outpace new entrant peers. Aug-14 Nov-14 Feb-15 May-15 Aug-15 Share Price Performance %YTD OVERWEIGHT- prefer WORK as our top pick in the sector We are optimistic over the sector as expected economic stimulus measures by the new economic team will boost domestic WORK 32.5 consumption. This will be a trigger to drive ad and utilization rates

back to normal. In terms of bottom-up analysis, we prefer WORK on SET ‐7.7 a strong four-year earnings CAGR (FY15F-FY18F) of 156% driven by digital TV revenue. Although RS looks oversold, this could be an opportunity to accumulate the stock. RS ‐37.5

‐60 ‐40 ‐20 0 20 40 Source: Bloomberg, Krungsri Securities

Ticker M Cap Price (Bt) TP U/D Rec EPS G% ROE (%) PE (x) P/BV (x) Div Yld (%) (US$) 31‐Aug (Bt) (%) 15F 16F 15F 16F 15F 16F 15F 16F 15F 16F WORK 474 39.8 47.0 18 OUTPERFORM 917 77 1.2 11.2 78.4 44.2 11.2 10.4 0.7 1.2 RS 302 10.5 12.5 19 OUTPERFORM (62) 106 8.3 17.0 74.0 35.9 6.3 5.9 0.8 1.7

Disclaimer:This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to invest in any securities. 1

Sector Update | Media September 1, 2015

Industry overview

TV is the king of all. Television advertising comprises the major portion of Thai ADEX. 1H15 ADEX from TV accounted for 74% of total ADEX, which jumped by 37% yoy to Bt50.8bn driven by digital TV. We expect TV broadcasting ADEX to remain the major portion at c.60% of total ADEX. We believe total TV household market of 23m could grow just slightly this year along with GDP growth due to a high base. We see TV as the most dominant advertising tool. Ad spend efficiency measured by reach is the highest for TV relative tonewspaper and radio. TV ADEX could reach 65m consumers as TV penetration in Thai households is 98%, whereas newspaper or radio advertising may reach 10m and 30m, respectively.

TV is the major portion of ADEX

100% TV analog Digital TV 80% Cable/Satellite TV Newspapers 60% 27% Radio Magazines 40% Cinema 61% 62% 59% Outdoor 43% 20% Transit In Store 0% Internet 2012 2013 2014 1H15 Source: AC Nielsen, Krungsri Securities

New broadcasting system era in Thailand. In December 2013, the National Broadcasting and Telecommunications Commission (NBTC) auctioned the first digital TV broadcast licenses in order to introduce digital TV to Thailand. This is in line with the region’s move away from analogue. By 2017, NBTC expects 95% of Thai households to have migrated to digital TV, which currently is based on satellite, and dominated by PSI c.50% of total Thai households. The trial period started in April 2014. Audience share of digital TV has risen to 34% vs 66% for analog. Ch. 7 has the highest analog audience share (33.2%) followed by Ch. 3 (27.4%), accounting for total audience share of 60.6%.

Digital TV gaining audience share from analog TV

0% 7% 9% 15% 14% 15% 16% 14% 16% 18% 25% 25% 27% 29% 30% 31% 34%

100% 93% 91% 85% 86% 85% 85% 85% 84% 82% 75% 75% 73% 71% 70% 69% 66%

Existing Analog (3,5,7,9, NBT, TPBS) DTT (Excl. Ch3, Ch7, Ch9) Source: AC Nielsen, Krungsri Securities

Krungsri Securities Research 2

Sector Update | Media Suptember 1, 2015

High bidding price pressure small players. Digital TV auctions generated Bt50.9bn to the NBTC with winning bids averaging 2.3x the starting price. Smaller players will find it tough to compete due to high fixed costs. We believe many may sell their airtime instead of producing content to feed their own channel, as production cost is the highest cost at c.50% of total broadcasting expense. Note that digital TV contracts will expire in 2028 (15 years).

Thailand: digital TV auctions High Definition Channel Value (Bt m.)News Channel Value (Bt m.) 11BEC Multimedia (BEC) 3,530 NBC Nex t vis ion (NBC) 1,338 22Bangkok Media and Broadcasting 3,460 Voice TV 1,330 33Bangkok TV and Radio (Channel 7) 3,370 Thai TV 1,328 44Tripple V broadcast (Thairath 3,360 Spring New s Television (SLC) 1,318 55MCOT 3,340 Thai New s Netw ork (TRUE) 1,316 66Amarin Televesion (AMARIN) 3,320 DN Braodcasting (Daily new s 1,310 77Grammy HD Digital TV (GRAMMY) 3,320 3A Marketing 1,298

Standard Definition Chann Value (Bt m.)Family Channel Value (Bt m.) 11Thai broadcasting (WORK) 2,355 BEC Multimedia (BEC) 666 22True DTT (TRUE) 2,315 MCOT 660 33Grammy SD Digital TV (GRAMMY) 2,290 Thai TV 648 4 BEC Multimedia (BEC) 2,275 5 R.S. Television (RS) 2,265 6 Mono Broadcasting 2,250 7 Bangkok Business Broadcasting (NBC) 2,200 Source: Company, Krungsri Securities

Consumer-related firms spend most on advertising. The consumer segment led by Unilever, Beiersdorf, L’Oreal, and P&G spent the most on advertising during 1H15.The vehicle segment (Toyota, Isuzu) and telecommunication (AIS and DTAC) were second and the third, respectively. Although the advertising business was affected by a domestic consumption slowdown in 1H15, the outlook for Thai ADEX in 4Q15 onward is much better due to coming government stimulus measures that will focus on improving domestic consumption.

Top 10 firms comprise 20-25% of total ADEX, mostly consumer firms

13%

11%

70%

Consumer products Vehicles Telecomunication Government

Source: AC Nielsen, Krungsri Securities

Krungsri Securities Research 3

Sector Update | Media September 1, 2015

Future outlook

ADEX could grow slightly in 2015. In the beginning of the year, the Media Agency Association of Thailand (MAAT) forecasted a 4.5% increase in ad spending in 2015 driven mainly by a growing terrestrial- based digital TV business and the digital media boom. However, we put ADEX growth lower than MAAT’s forecast, as historical data show a high correlation between GDP and ADEX.GDP 2015 is expected to grow slightly by 2.7%, which implies the same for ADEX.

Expect better growth in 2016. Based on recent GDP data, we expect higher ADEX growth in 2016 on a better domestic consumption outlook. We see domestic demand to get a boost from government economic stimulus measures, which will result in ADEX growth in FY16F exceeding FY15F. Due historical data, ADEX accounted for c.1% of nominal GDP, but last year dropped to 0.8% due to weak domestic sentiment. We conservatively forecast ADEX growth to be 2.7% in 2015 and jump to 12% in 2016. This is based on the belief economic stimulus results in better domestic sentiment, which lifts ADEX to nominal GDP to 0.85%.

ADEX to nominal GDP

Bt bn 140 1.4% 1.2% 1.1% 1.1% 120 1.1% 1.1% 1.2% 1.0%1.0% 1.0% 0.9%0.9%0.9%0.9%0.9% 100 0.9% 0.85% 1.0% 0.8%0.8% 80 0.8%

60 0.6%

40 0.4%

20 0.2%

0 0.0%

ADEX % of nominal GDP

Source: BOT, AC Nielsen, and Krungsri Securities

Expect CCI to improve in 2016 due to government spending. We believe the economy will get a boost from increased government spending on infrastructure projects that were delayed from 2H15. We expect this will be a key catalyst to boost sentiment and consumer confidence, and lead to higher domestic consumption. This could be a trigger for media sector to hike advertising expenditure by consumer- related companies.

CCI and ADEX Consumer confidence index

30% 90

20% 85 10% 80 0% 75 -10% 70 -20%

65 -30%

60 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

CCI ADEX

Source: BOT, AC Nielsen, and Krungsri Securities Source: Company and Krungsri Securities

Krungsri Securities Research 4

Sector Update | Media Suptember 1, 2015

Content is king. Media content is a key success factor for this business. Despite the high legacy rating in the past, MCOT (Ch. 9) and Royal Thai Army Radio and Television (Ch. 5) have been losing rating and audience share since digital TV started in April 2014. RS, Workpoint, and Grammy have been gaining market share as they produce content to support their own channels. We expect channels with their own content to be the winner and succeed in this industry in the long run.

Demand for content exceeds supply. The current situation favours content providers, as many media owners lack content to support their channels. This situation is ideal for those with in-house production such as RS, Grammy, Workpoint, Ch. 7, and Ch. 3. This is an advantage for media content firms such as TV Thunder (TVT).

Out-of-home media could outpace the industry. We believe out-of- home media, including traditional billboard, digital billboard, and mass transit advertising, will grow at a 14.9% CAGR during 2015-2020 and contribute 12% of total ADEX vs 6% in 2014. This level is in line with levels seen globally and in Singapore.

We expect digital billboards will be a key catalyst for the out-of-home segment on a higher infrastructure investment outlook that will lead to more out-of-home advertising space. The strongest growth will be seen in regions with high levels of infrastructural development, namely, Central, Northeast, and East. Bangkok will be the most lucrative area for out-of-home advertising on rising use of digital format.

The highest digital out-of-home penetrationrate is found in Singapore, where digital out-of-home revenue accounts for c.12% of total ADEX. We expect PLANB Media will benefit the most from an upturn in out-of-home spending.

Top gainer. Since the beginning of the DTV platform, WORK’s rating has increased steadily to rank No.3, almost double that of Ch. 8 (RS). We believe this was primarily due to its media content expertise and advantage in obtaining the first PSI (satellite platform) channel.

Top loser. The TV Pool group faces a loss from Thai TV and Loca Channels, which were unable to pay the second installment of their digital TV license fee of Bt288m in May 2015. Thai TV announced its intention to return its two digital licenses to the NBTC after failing to pay the second installment of its auction fee. Thai TV faces a Bt300m loss from operating the two channels for more than a year. The license for the Loca children's channel is worth Bt648m, and the license for Thai TV News is worth Bt1.3bn. Currently, the industry is waiting for whether the licenses will be returned.if Thai TV returns is license with an acceptable fine, we believe other channels may follow.

OVERWEIGHT- prefer WORK as our top pick in the sector

We are optimistic over the sector as expected economic stimulus measures by the new economic team will boost domestic consumption. This will be a trigger to drive ad and utilization rates back to normal. In terms of bottom-up analysis, we prefer WORK on a strong four-year earnings CAGR (FY15F-FY18F) of 156% driven by digital TV revenue. Although RS looks oversold, this could be an opportunity to accumulate the stock.

Krungsri Securities Research 5

Sector Update | Media September 1, 2015

Thailand: Top 5 based on TV rating 4+

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15

12.75 2.90 2.96 2.89 2.65 2.60 2.69

21.85 1.88 1.85 1.82 1.98 2.15 2.19

30.53 0.54 0.56 0.58 0.61 0.61 0.65

40.29 0.28 0.31 0.30 0.31 0.35 0.39

50.28 0.24 0.24 0.26 0.25 0.30 0.32

Source: AC nielsen, Krungsri Securities

Krungsri Securities Research 6

September 1, 2015 OUTPERFORM

Workpoint Entertainment

(WORKTB) Share Price: Bt39.75 Target Price: Bt47.0 (+18.2%) The real contender

INITIATION Expect ad rates to double in FY18F, leading to quadruple EPS

Company Update growth to Bt2.14/sh thanks to high consistent TV rating TV business to grow 26% while theatre and event businesses to grow another 15% in 2016F OUTPERFORM rating and Bt47/sh DCF-based TP. Expect WORK to outperform the sector due to clear content strategy and gaining market share from peers Worrapong TUNTIWUTTHIPONG Ad rates to double and earnings to quadruple in three years 662 - 659 7000 ext 5016 WORK is known as market leader of game shows. Its popularity allows [email protected] the company to capture various audience targets (A to C), which led to a rapid increase in TV rating to 0.65 in July from 0.26 in the same Key Data period last year. We believe WORK will be able to double its average 12-mth High/Low (Bt) 49.64 / 21.07 ad rate to Bt60,000 in FY18F, narrowing the gap with first-tier Ch. 7 Market Capital (Btm/US$m) 16,585 / 462.79 and Ch. 3 (BEC). We expect its rating to rise to above 1.5 in 2016 3m avg. Turnover (Btm/US$m) 30.18 / 0.84 COMPANY RESEARCH | COMPANY RESEARCH | thanks to continuing investment in content to boost quality and Free Float (%) 45.76 differentiate itself from peers. This will result in quadruple earnings Issued Shares (m shares) 417.23 Major Shareholders: growth to Bt895m in FY18F from Bt212m in FY15F. - PRAPAS CHOLSARANON 22.22 All business units (TV, theatres, events) show double-digit growth - PHANYA NIRUNKUL 22.13 The TV business will be the key revenue driver contributing 80% of - MINDO ASIA INVESTMENTS 7.67 total revenue. WORK’s rating has improved continuously since April Share Price Performance 2014 since the launch of DTV. This helped push up its average ad rate/minute to Bt35,000/Bt42,000 in FY15F/ FY16F (from less than Bt30,000 in FY14) with its ability to maintain utilization at 80%. Expansion of theatre and event businesses should boost revenue contribution from both from 15% last year to 20%, or c.Bt420m in FY15F.

OUTPERFORM with Bt47/sh TP. Prime beneficiary of improving domestic consumption Our TP of Bt47 is based on DCF methodology with 8.9% WACC, 3% terminal growth. Although the stock may look pricey in terms of P/E multiple of 45x FY16F, four-year earnings growth CAGR of 156% YTD 1Mth 3Mth 12Mth FY14-FY18F implies FY16F PEG of 0.29x, which we view as Absolute (%) 32.5 4.6 12.8 85.5 attractive. The sector and share price are under pressure from weak Relative to index (%) 43.6 9.0 22.0 110.0 domestic sentiment, but WORK should outperform the sector once domestic consumption turns positive. This will positively affect ADEX Krungsri Securities vs Market and provide upside risk to our revenue assumption. Positive Neutral Negative Market Recommend 5 2 4 Financial Summary (Btm) Krungsri Consensus % +/- Year to Dec 2013 2014 2015F 2016F 2017F Target Price (Bt) 47.0 47.0 0 Sales (Bt m) 2,167 2,214 2,298 2,841 3,519 ’15 Net Profit 212 242 (12.4) Growth (%) 1.5 2.2 3.8 23.6 23.8 ’16 Net Profit 375 460 (18.5) EBITDA (Bt m) 527 431 816 966 1,295 Source: Bloomberg, Krungsri Securities Growth (%) (16.0) (18.1) 89.1 18.4 34.1 Recurring profit (Bt m) 257 21 212 375 663 Growth (%) (35.6) (91.9) 916.7 77.3 76.6 Normalized EPS (Bt) 0.6 0.0 0.5 0.9 1.6 Growth (%) (35.6) (91.9) 916.7 77.3 76.6 PE (x) 65.0 801.6 78.8 44.5 25.2 DPS (Bt) 0.4 - 0.2 0.3 0.5 Yield (%) 0.9 - 0.4 0.7 1.2 BVPS (Bt) 3.7 3.7 3.5 3.8 4.6 P/BV (x) 10.9 10.8 11.3 10.5 8.7

Disclaimer:This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness arenot guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to invest in any securities. 7

Initiation Coverage | WORK September 1, 2015

Business model

WORK has been a highly experienced TV production house since 1989. It recently entered the Thai digital TV platform with a very successful since in May2014 through its WORKPOINT 1 channel. This is broadcasted widely through both digital TV and satellite to capture the largest possible audience share. WORK has other businesses such as event marketing, concerts and plays (Show Biz), movies, and publishing. Revenue comes primarily from Digital TV, event marketing, and concerts and plays.

Strong major shareholders. WORK’s key shareholders are Mr. PunyaNirunkul and Mr. PrapasCholsaranon, who hold majoritystakes of c.28% each. Other shareholders are Mindo Asia Investment, Dentsu Media, Krungthai Asset Management, and others.

Programs by category Shareholder structure

Mr. Prapas Cholsaranont 5%

Mr. Panya Nirunkul 22% 18% 28% Mindo Asia Investment

Thai NVDR 1% 2% Dentsu Media Thailand 55% 2% 3% Krungthai Asset Management 22% 4% Mr. Sompong

11% 27% Mr. Jiradech

Variety/Sport Drama/Series News Cartoon Others

Source: Company and Krungsri Securities Source: Company and Krungsri Securities

Specialize in TV content production. WORK has many popular programmes, i.e. ChingRoiChingLan, Ching Cha Sawan (Microphone Thong Kum), SME Tee Tak, Fan Pan Tae, PrisanaFah Lab, RaberdTherdTherng, etc. All content is published through its own channel. WORK also provides international content such as Thailand’s Got Talent by its OEM.

Flagship content

Source: Company data, Krungsri Securities

KrungsriSecurities Research 8

Initiation Coverage | WORK September 1, 2015

The playhouse “Siam Pic Ganesha” to strengthen its business. There has been robust demand for plays. We believe revenue this business, i.e., concerts, plays, seminars, etc., could be an additional revenue catalyst. WORK launched theatreproductions in 1Q15, which generated Bt66m in revenue in 1H15. WORK has already sold out its concerts and plays, i.e., HomRong and Prapas concerts. We expect concerts and plays to generate Bt200mn revenue in FY15F.

Siam Pic Ganesha theatre Detail Seat Area (Sq. M.) Business The theatre 1,044 n.a. Talk show, concerts, plays, and seminar The playhouse 200 252 Talk show, concerts, plays, and seminar The studio 84 Seminar Lobby space 619 Activity

Source: Company data, Krungsri Securities

Management team Name Age Current Position Term Stake (%) Mr. Punya Nirunkul 60 Chief Executive Officer 1989 - Present 27.51 Mr. Prapas Cholsaranon 54 Vice Chairman 1989 - Present 27.39 Mr. Panid Sodsri 51 Group CEO 1991 - Present - Mr. Kanit Watanapradit 54 Chief Accounting Officer 2012 - Present - Ms. Witchanee Srisaw ad 44 Chief Marketing Officer 1994 - Present - Pol. Col. Pratchai Jaicharnsukkij 59 Independent Director & Audit committee 2004 - Present - Mr. Somkiat Tiloklert 60 Independent Director & Audit committee 2012 - Present - Ms. Pornthip Duriyapradit 50 Independent Director & Audit committee 2012 - Present - Mr. Chalakorn Panyachom 40 Chief Digital TV Business Officer 2014 - Present - Mr. Chayan Chantaw ongsathorn 42 Chief Production Officer 2014 - Present - Mr. Thanasak Hunarak 45 Chief Business Development officer 2014 - Present - Mr. Surakarn Sirimote 37 Chief Financial Officer 2013 - Present -

Source: Company data, Krungsri Securities

KrungsriSecuritiesResearch 9

Initiation Coverage | WORK September 1, 2015

Ranked No. 1 among new digital TV entrants

Popular content to boost rating.WORK’saudience share and ratings have improved monthly since the beginning of digital TV.This will enable the company to increase ad rates as well as ad utilization. WORKPOINT1’s average ad rate in 2Q15 was Bt33,000 per minute, while that of Ch. 3 was 3x higher. We expect utilization to increase to above 80% in FY16F on the expectation of a domestic consumption recovery and rising ratings.Current utilization rate in 2Q15 was 75%. We believe WORK will be able to increase ad ratesand audience share and close the gap with Ch. 3 as ratings increase.

Top four audience share of new entrants

9.0% 8.2% 7.6% 8.0% 7.0% 6.0% 5.2% 5.0% 3.7% 4.0% 2.8% 3.0% 2.0% 1.0% 0.0% Jul-15 Jul-14 Apr-15 Apr-14 Oct-14 Jun-15 Jun-14 Jan-15 Jan-14 Feb-15 Mar-15 Feb-14 Mar-14 Aug-14 Sep-14 Nov-14 Dec-14 May-15 May-14 WP TV CH8 MONO29 ONE Source: Company data, Krungsri Securities

New content and strong broadcasts to sustain ratings.WORK plans to maintain consistent ratings this year through new content such as i) Microphone Thong Kam, ii) Buakaw’s boxing, and other sport content. Other drivers will be i) PSI platform, which made WORKPOINT1 No. 1 in the platform (PSI accounts for more than 50% of total household penetration, especially upcountry), and ii) audience base carried over from analog TV.

Top four ratings of new entrants (4+)

0.70 0.65

0.60 0.53 0.50 0.38 0.40 0.30 0.30 0.20 0.20

0.10

WP TV CH8 MONO29 ONE Source: Company data, Krungsri Securities

KrungsriSecurities Research 10

Initiation Coverage | WORK September 1, 2015

TV digital business the major contributor.Due its continued ratings momentum, Digital TV will be the major revenue contributor with Bt1.8bn in FY15F and Bt2.3bn in FY16F,or c.80% of total revenue. This is based on our assumption of Bt35,000 and Bt42,000 ad rates in FY15F and FY16F, respectively. We expect utilization rates to increase along with an upturn in domestic consumption in 2H15, driven by new economic stimulus measures from the new Cabinet.We forecast the utilization rate to increase above 75% from 2H15 onward from c.70% in 1H15.We expect total revenue to increase by 4%/24% in FY15/16F to Bt2.3bn/Bt2.8bn.

Television programmes the major contributor

10.4%

0.9% 7.8% 0.5% 0.2%

80.0%

Television Programs Publication Animation and Computer Graphic Movies Concerts and Plays Event Marketing Source: Company data, Krungsri Securities

Wider margin in Digital TV business. Higher revenue will be the main GPM driver as digital TV costs are fixed. This will impact directly on earnings. For FY15F the company guided that it would revise down production cost assumption from Bt550m to Bt470m, but increaseit back to Bt550m in FY16F. We conservatively forecast a sharp upturn in TV digital business GPM of 44% each in FY15/16F after dippingin FY14 due to the domestic turmoil.

TV digital business GPM

60%

53% 55% 52% 52%

50% 48% 46% 44% 44% 45%

40% 37%

35%

29% 30%

25% 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F Source: Company data, Krungsri Securities

KrungsriSecuritiesResearch 11

Initiation Coverage | WORK September 1, 2015

Show biz to drive revenue.WORK concentrates on Show Biz to leverage its expertise in concerts, plays, and events through Siam Pic Ganeshatheater. We see positive momentum from this business given that the Hom-rong musical in 2Q15 was sold out.WORK has another three shows,including the Inter comedy and Singto the guitar man in 3Q15. Another successful concert and play will be the Prapas concert and KhunPraChuay in 4Q15, which are already sold out. We expect the show biz business to contribute total revenue of Bt180m in FY15F and Bt207m in FY16F (c.8% of total revenue) with a GPM of 30%.

Able to handle large events.WORK is able to handle large eventsworth Bt100-700m each, up from less than 50m per event in the past. In 2H15, WORK plans to launch 10 events, such as a major Carabao concert, which will be positive for revenue. We expect the event business to generate revenue of Bt240m in FY15F and Bt275m in FY16F (c.10% of total revenue) with a GPM of 40%.

Pulled back content from analog TV.Work pulled back all programmes from analog TV since the beginning of this year, as well as its ChingRoiChingLan from Ch. 3 (analog TV) in Julyand began broadcasting these on its own channel. This caused a spike in WORK’s audience shares in Januaryto 7.6% from 5.2% in Dec. 20 14. The company expects to set ChingRoiChingLan’s ad rate at Bt150,000-200,000 per minute on WORKPOINT1 compared to c.Bt300,000 on Ch3. Fortunately for WORK, it can reduce rental fees, which account for c.60% of total costs. We believe this will have a positive impact in the longerterm.

Earnings to surge by CAGR of 156% during FY14-18F.We expect earnings to grow by 917% in FY15F to Bt212m and increase continuously by 77% each in FY16-17F, driven mainly by revenue growth from digital TV business.

WORK’s earnings forecast

1,000

900

800

700 21% 7-year CAGR 600

500 156% 4-year CAGR 400

300

200

100

- 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F Source: Company data,Krungsri Securities

KrungsriSecurities Research 12

Initiation Coverage | WORK September 1, 2015

Valuation

Initiate coverage with an OUTPERFORM rating, Bt47/sh TP.

Our TP of Bt47is based on DCF methodology with WACC of 8.9% and terminal growth of 3%. Although the stock looks pricey in terms of P/E valuation at 45x FY16F, a four-year earnings growth CAGR of 156% during FY14-FY18F implies PEG of 0.29x, which we view as attractive. We believe WORK has concrete prospects compared to its peers due its consistent increase in rating, variety of in-house programmes, and a solid earnings outlook.

Key risks for the company are i) being depending on one key person, ii) high fixed costs from the production of TV programmes, iii) investment cost of license fees, and iv) a slowdown of domestic consumption.

Equity value per share Terminal growth 0.00% 1.00% 1.50% 2.00% 2.50% 3.00% W 7.9% 39.1 43.4 46.0 49.1 52.7 57.2 8.9% 34.5 37.6 39.5 41.7 44.2 47.1 A 9.9% 30.9 33.3 34.7 36.3 38.0 40.1 C 10.9% 28.1 29.9 31.0 32.2 33.5 35.0 C 11.9% 25.8 27.2 28.1 29.0 30.0 31.1 Source: Company data,Krungsri Securities

Assumption 2015 2016 2017 2018 Revenue forecast Television Business 1,840 2,318 2,870 3,217 Publication 5 6 6 6 Animation and Computer Graphic 12 13 13 14 Movies 22 23 24 24 Concerts and Plays 180 207 290 333 Event Marketing 239 275 316 364

TV business assumption Advertising (Baht) 35,000 42,000 52,000 60,000 Utilisation 80% 80% 80% 80%

GPM a ssumption Television Business 44% 44% 48% 53% Publication 10% 10% 10% 10% Animation and Computer Graphic 20% 20% 20% 20% Movies 40% 40% 40% 40% Concerts and Plays 20% 20% 20% 20% Event Marketing 40% 40% 40% 40% Source: Company data,Krungsri Securities

KrungsriSecuritiesResearch 13

Initiation Coverage | WORK September 1, 2015

P/E Band P/BV Band

Source: Bloomberg, Krungsri Securities Source: Bloomberg,Krungsri Securities

KrungsriSecurities Research 14

Initiation Coverage | WORK September 1, 2015

INCOME STATEMENT (Btm) 2013 2014 2015F 2016F 2017F Turnover 2,167 2,214 2,298 2,841 3,519 Cost of sales (COGS) (1,145) (1,133) (796) (1,165) (1,472) Depreciation & amoritisation (196) (404) (551) (497) (466) Gross profit 827 677 951 1,179 1,581 S&A expenses (504) (665) (664) (693) (735) Operating profit 323 12 287 486 845 Other operating income 19 55 50 50 50 EBIT 341 68 337 536 895 Interest expense (10) (40) (73) (67) (66) Other income 0 0 0 0 0 Pre-tax profit 331 27 265 469 829 Income tax on company & subsidiaries (84) (5) (53) (94) (166) Profit after tax 247 22 212 375 663 Minority interests 10 (1) 0 0 0 Share of associate net income 0 0 0 0 0 Preferred dividends 0 0 0 0 0 Recurring attributable net profit 257 21 212 375 663 Extraordinary items 0 0 0 0 0 Reported net profit 257 21 212 375 663

Shares in issue (Y/E, m) 417 417 417 417 417 EPS (excluding extraordinary items, Bt) 0.62 0.05 0.51 0.90 1.59 DPS (Bt) 0.37 0.00 0.15 0.27 0.48 DPS/EPS (%) 60% 0% 30% 30% 30%

CASHFLOW (Btm) 2013 2014 2015F 2016F 2017F Pre-tax profit (after extraodinary items) 331 27 265 469 829 Depreciation & amortisation 196 404 551 497 466 EBITDA 527 431 816 966 1,295 Notional cash taxes on ungeared operations (101) (90) (53) (94) (166) Net change in working capital (217) 523 (318) (57) (116) CAPEX (433) (865) (150) (150) (150) Operating free cashflow (OpFCF) (224) (1) 294 665 863 Net interest income adjusted for tax impact 0 13 (73) (67) (66) Net free cashflow (NetFCF) (224) 11 222 598 796 Non-operating income (net of tax) 3 (5) (6) 2 2 Equity income from associates 0 0 0 0 0 Investments 0 0 0 0 0 Net change in other assets/liabilities (14) (7) (18) 0 0 Other items 4 2 101 67 66 Residual cashflow (RCF) (231) (0) 299 667 865

Dividends (154) 0 (63) (113) (199) Equity capital raised 39 200 0 0 0 Other items 318 427 (563) (404) (342) Cashflow from financing 202 627 (626) (517) (541)

Net change in cash (28) 626 (327) 150 324 Net cash/(debt) at YS 317 288 915 587 738 Ending cash 288 915 587 738 1,062

KrungsriSecuritiesResearch 15

Initiation Coverage | WORK September 1, 2015

BALANCE SHEET (Btm) 2013 2014 2015F 2016F 2017F Cash & equivalents 288 915 587 738 1,062 A/C receivable 720 386 575 710 880 Inventory 81 141 98 120 140 Others 0 0 0 0 0 Total Current Assets 1,089 1,442 1,259 1,568 2,082 Property and equipment 686 962 899 828 749 Investments & associates 2 2 2 2 2 Other assets 484 628 430 311 230 Goodwill 0 0 0 0 0 Total Assets 2,261 3,034 2,590 2,709 3,063

Short-term debt 352 250 195 191 249 A/C payable 288 521 348 449 522 Other current liabilities 37 46 10 10 10 Total Current Liabilities 677 817 553 650 781 Long-term debt 0 614 514 414 314 Other liabilities 54 54 48 50 52 Total Liabilities 731 1,485 1,115 1,114 1,148

Share capital 257 266 266 266 266 Share premium 609 800 800 800 800 Revaluation surplus 0 0 0 0 0 Translation adjustment 26 25 25 25 25 Retained earnings 579 604 752 1,015 1,479 Total ordinary equity 1,471 1,694 1,842 2,105 2,569 Preferred equity 0 0 0 0 0 Minorities 65 56 56 56 56 Total equity & minorities 1,536 1,750 1,898 2,161 2,625

Accumulated depreciation (477) (523) (686) (857) (1,036) BV per ordinary share (Y/E, Bt) 3.67 3.71 3.54 3.82 4.59 Adjusted book value ps (Y/E, Bt) 3.67 3.71 3.54 3.82 4.59

RATIOS (%) 2013 2014 2015F 2016F 2017F Growth Turnover 1.5 2.2 3.8 23.6 23.8 EBITDA (16.0) (18.1) 89.1 18.4 34.1 EBIT (37.8) (80.2) 399.3 59.0 67.0 Recurring net profit (35.6) (91.9) 916.7 77.3 76.6 EPS (before extraordinary items) (35.6) (91.9) 916.7 77.3 76.6 EPS (35.6) (91.9) 916.7 77.3 76.6 DPS (49.6) (100.0) n.a. 77.3 76.6

Accounting ratios Gross profit margin 38.2 30.6 41.4 41.5 44.9 Operating profit margin 14.9 0.5 12.5 17.1 24.0 Net profit margin 11.8 0.9 9.2 13.2 18.8 Turnover/avg total assets (x) 1.1 0.8 0.8 1.1 1.2 ROA 19.6 9.7 0.7 8.0 13.0 ROE 28.2 16.7 1.2 11.2 17.4 S&A/turnover 23.3 30.0 28.9 24.4 20.9

Operating performance EBITDA margin 24.3 19.5 35.5 34.0 36.8 EBIT margin 15.7 3.0 14.7 18.9 25.4 NOPLAT margin (NOPLAT/Turnover) 0.3 10.6 17.1 23.9 27.1 Asset turnover (Turnover/avg Op assets) 1.1 0.8 0.8 1.1 1.2

KrungsriSecurities Research 16

September 1, 2015 OUTPERFORM

RS Pcl (RS TB) Share Price: Bt10.50 Target Price: Bt12.5 (+19.0%) The forgotten rising star

INITIATION Earnings to double in FY16F to Bt294m from Bt143m in FY15F, Company Update on higher utilization rate and low base effect Operations set to turn around from higher spending on content OUTPERFORM – TP Bt12.5/sh based on DCF valuation. The run- down in share price provides a good opportunity to accumulate the stock upon a consumption turnaround.

Earnings to recover in 2H15 and jump 106% in FY16F WorrapongTUNTIWUTTHIPONG RS has been the victim of weak domestic consumption in rural areas 662 - 659 7000 ext 5016 as industry ad spending shifted from the low-end segment to the mid- [email protected] to high-end segment. As a result, its utilization rate in 1H15 dropped by half from last year to 35%, wiping out 1H15 earnings. We expect Key Data earnings to drop 62% yoy in 2015F on our utilization rate assumption 12-mth High/Low (Bt) 21.9 / 7.5 of 55%. We expect earnings to improve in 2H15 once the government Market Capital (Btm/US$m) 10,553 / 294.48

COMPANY RESEARCH | stimulus package takes effect, which should help boost its utilization COMPANY RESEARCH | 3m avg. Turnover (Btm/US$m) 85.31 / 2.38 rate above 60% and lead to an earnings recovery to Bt142m in 2H15 from Bt1m in 1H15. The radio business will be another catalyst after Free Float (%) 37.51 digital radio auctions occur in 2016. RS is highly likely to join the Issued Shares (m shares) 1,005 bidding, as digital radio will expand its coverage nationwide and enable Major Shareholders: it to increase ad rates in FY16F. - SURACHAI CHETCHOTISAK 31.04 - SORAT VANICHVARAKIJ 11.25 Operations set to turn around from higher spending on content - THAI NVDR 10.82 RS’s rating has risen steadily but slowly in the past year, resulting in a low ad rate of Bt25,000/min in FY15F. This led to its rating Share Price Performance underperforming that of WORK since the launch of DTV, primarily due to lower initial investment in content of c.Bt300m vs WORK’s c.Bt500m, resulting in lower quality and popularity. RS realized this weak point and increased budget for content production to Bt500m in FY15F and Bt600m in FY16F to boost ratings and maintain its No. 4 DTV position. This should help turn around its operations, albeit this may result in a lower GPM in the next few years.

OUTPERFORM with a Bt12.5TP. The stock looks oversold We rate RS OUTPERFORM with Bt12.5/sh TP based on DCF valuation with 9% WACC and 3% terminal growth. We assume the company’s average advertising rate per minute will rise to Bt25,000 in FY15F and to Bt34,000 in FY16F (vs Bt12,000 in FY14) with utilization YTD 1Mth 3Mth 12Mth rate to increase to above 65% in FY16F from 60% in FY15F. Based on Absolute (%) (36.0) (11.8) (17.3) 36.4 our assumptions, we expect earnings to grow at a four-year CAGR of Relative to index (%) (30.6) (8.1) (10.5) 54.4 6.1% in FY14-18F. The depreciation in share price provides a good opportunity to accumulate the stock upon a consumption turnaround. Krungsri Securities vs Market Positive Neutral Negative Financial Summary (Btm) Market Recommend 5 4 2 Year to Dec 2013 2014 2015F 2016F 2017F Krungsri Consensus % +/- Sales (Btm) 3,461 4,306 3,384 3,723 3,867 Target Price (Bt) 12.5 12.7 (1.6) Growth (%) 23.1 24.4 (21.4) 10.0 3.9 ’15 Net Profit 143 176 (18.8) EBITDA (Btm) 754 1,396 719 894 1,033 ’16 Net Profit 294 466 (36.9) Growth (%) 54.0 85.1 (48.5) 24.4 15.6 Source: Bloomberg, Krungsri Securities Recurring profit (Btm) 394 371 143 294 428 Growth (%) 38.8 (6.0) (61.6) 106.4 45.5 Normalized EPS (Bt) 0.39 0.37 0.14 0.29 0.43 Growth (%) 38.8 (6.0) (61.6) 106.4 45.5 PE (x) 26.7 28.4 74.0 35.9 24.6 DPS (Bt) 0.3 0.3 0.1 0.2 0.3 Yield (%) 2.6 2.9 0.8 1.7 2.4 BVPS (Bt) 1.6 1.8 1.7 1.8 2.0 P/BV (x) 6.7 6.0 6.3 5.9 5.4

Disclaimer:This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness arenot guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to invest in any securities. 17

Initiation Coverage | RS September 1, 2015

Business Model

RS is a content media company with its own digital and satellite TV broadcast channel. RS also has a music business, which has been its core business since the firm began operating. Its core businesses are separated into three business units.

(i) Media

The media business accounts for 61% of total revenue. The unit comprises the digital TV and satellite TV platforms. This business earns income from advertising and product placement or tie-in products with TV content.

RS operates four channels: i) Channel 8 (Ch. 8) digital TV, which was transformed from the satellite platform in 3Q14. This channel accounts for c.41% of total revenue.

Channel 8 (Ch. 8) on the digital TV platform. This channel was transformed from satellite platform in 3Q14, and accounts for c.41% of total revenue. Ch. 8 is a variety channel with its strength prime time television dramas. Its content consists of variety 55%, news 25%, series 15%, and sports 5%, with 90% of content produced in-house. As of July, RS was ranked No. 4 in terms of viewership. Management expects to gain share from upcountry viewers.

Channel 2 (Ch. 2) is on the satellite TV platform. This channel provides an alternative for advertisers with smaller budgets compared to Ch 8. Ch. 2 focuses on star and celebrity lifestyles. Management expects this to be a key magnet for the channel, which is positioned similar to the E! Entertainment channel in the US.

Sabaidee TV is the top Thai country music channel. Its target groups are upcountry where country music is popular. This channel will be a major tool to attract new talent for the music business.

You Channel is a music channel similar to MTV. This channel will provide new talent for the music business.

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Initiation Coverage | RS September1, 2015

(ii) Music

The music business accounts for c.15% of total revenue. This business was a core business before the company switched to focus on media. We believe this is a sunset business as its trend has changed along with the global trend in which artists no longer have to work under a music management company. Artists now have their own distribution channel such as iTunes, YouTube. Revenues of this business are from the following:

Sales of music in various formats such as digital content downloads, ring tones, music downloads through channels such as iTunes.

Sales of audio CDs, MP3 format, combining both hit singles of new and old music in various formats, i.e., CD (VCD) and DVD (DVD) recordings of concert artists both Thai and foreign.

Sales of licensing copyrighted material by storage companies in Thailand, or in the name of TCC (Thai Copyright Collection Co., Ltd.), a subsidiary that stores copyrighted works to be used by RS.

Total value of the music industry in Thailand is c.Bt4.3bn, contributed by concerts and events, digital, physical (CDs, DVDs), and music licensing accounting for 49%, 25%, 15%, and 11%, respectively. This industry is facing a downtrend because as consumers pirate music by downloading from sources such as bit torrent and other illegal sources instead of purchasing from iTunes.

(iii) Event

RS organizes concerts, marketing plans, products, services and agencies in media promotional activities at the point of sale or below the line of shows and events. Media entertainment provides continuity for the business in the long term. This business accounts for 13% of total revenue.

Company background

RS started doing business by recording songs on cassette tape under the "Rose" brand by Mr. Kriengkrai Chetchotisak and Mr. Surachai Chetchotisak in 1976. The company started as Rose Sound with capital of Bt50,000, and later in 1992 the company changed its name to R.S. Promotion 1992 Limited. It used Bt300m for business expansion to change itself to a fully integrated entertainment company instead of issuing only cassette tapes.

The company provides movies, TV series, TV variety content, and radio, which have become its main businesses. In 2003, the company registered on the Stock Exchange of Thailand and changed its name to RS Limited Pcl primarily to engage in three media groups: media, music, and showbiz (events).

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Initiation Coverage | RS September 1, 2015

Shareholder structure

As of 11 March 2015, the Chetchotisak family was RS’s largest shareholder with a 34% stake followed by the Vanichvarakij family with 11%, foreign institutions 8%, and other investors 79%. Mr. Kriengkrai Chetchotisak is the CEO and chairman while Mr. Surachai Chetchotisak is a businessman and is well known as a value investor among local retail investors.

In the beginning of August this year, RS announced that the King Power Group acquired a 9% stake in RS for Bt940m. RS informed that the group purchased 94m shares, of which 79m shares were from the company's chief executive Surachai Chetchotisak and the other 15m shares from his son at Bt10 each.

Major shareholders as of 11 Mar 2015

Chetchotisak Family, 40%

Others, 79%

Vanichvarakij Family, 11%

Foreign Institutions, 8% Source: Company, Krungsri Securities

Management team Name Age Current Position Term Stake (%) Mr. SurachaiChetchotisak 51 Chairman & Chief Executive Officer 2012 – Present 32.39 Mrs. PornpanTecharungchaikul 43 Director 2003 – Present - Mr. Darm Nana 44 Director 2007 – Present - Mr. DanaisidhPeslapunt 58 Director 2007 – Present - Mr. SoratVanichvarakij 40 Director 2012 – Present 17.11 Mr. SutthisakPrasatkrarukarn 48 Director 2012 – Present - GEN. PairojPanichsamai 67 Independent Director & Audit committee 2007 – Present - Mr. PhisitDachanabhirom 72 Independent Director & Audit committee 2007 – Present - Mr. WitayaDanthamrongkul 51 Independent Director & Audit committee 2007 – Present - Source: Company, Krungsri Securities

KrungsriSecurities Research 20

Initiation Coverage | RS September1, 2015

Better sentiment and No. 4 rating the key catalysts to raise ad rates in 2016

Disappointing earnings in FY15F but could improve in FY16F. At the beginning of 2015, the company planned to increase ad rates for Ch. 8 to Bt50,000 from Bt10,000 in 2014. However, the plan was not implemented as the slowdown in consumption directly affected the consumer segment, which accounts for 61% of total advertising expenditure. RS was negatively impacted by a lower utilization rate, which dropped sharply from 65% to 30% in 1H15. This resulted in a sharp drop in 1H15 earnings by 98% yoy to Bt1m. We expect to see an improvement once consumer confidence recovers.

TV business the key driver with support from radio business. We expect earnings to grow at a 6.1% CAGR during FY14-FY18F. We believe the media business will be the key growth driver for RS contributing 90% of total revenue in FY18F from 55% in FY14. We believe the radio business will return to be another catalyst due to upcoming digital radio auctions in 2016. We believe RS may join the bidding to continue its radio business. We foresee nationwide digital radio coverage to help boost ad rates significantly in FY16F.

Revenue proportion Earnings growth of a 7.1% 4-year CAGR 100% 600 8% 6% 5% 10% 4% 4% 90% 24% 7% 30% 25% 10% 80% 18% 10% 500 10% 70% CAGR of 6.2% CAGR of 7.1% 60% 20% 400 31% 47% 50% 35% 91% 85% 90% 300 40% 78% 70% 30% 52% 200 20% 42% 35% 29% 10% 100 0% 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2017F 0 Media Music distribution Showbiz Spanish La Liga 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F Source: Company and Krungsri Securities Source: Company and Krungsri Securities

Ranked no.4 by gaining shares from previous analog channels. RS started its TV media business from providing content for free-TV operators such as CH3, CH5, and CH9, after that RS started its own channel on satellite platform through CH8, CH2, You channel, Sabaidee TV channel, and currently CH8 on digital TV platform is the main channel to earn revenue. We believe traditional channels that previously earned revenue from selling air-time and do not have their own production house would lose market share to the new comers such as RS, Workpoint and GRAMMY as they do not have contents to fill in the available air-time to raise up audience viewer shares for better TV rating. As we can see an impact from TV rating of CH5 and CH9 that have decreased gradually since transforming to digital TV platform because of no content.

KrungsriSecurities Research 21

Initiation Coverage | RS September 1, 2015

Better sentiment and No. 4 rating key catalysts to hike ad rates in 2016. RS plans to ramp-up new drama series from one to three days per week in 2015 to boost TV ratings. It plans to spend more on content for Ch. 8 to Bt500m in 2015 from Bt300m in 2014, and further investment is of c.Bt600m is planned in 2016 to attract viewers. RS aims to overtake Ch. 5 and Ch. 9 (MCOT) by the end of 2015. During an upturn in domestic sentiment from the performance of Ch. 8, we believe the company will increase average advertising rate to Bt25,000 per minute in FY15F and to Bt34,000 in FY16F from Bt12,000 in FY14. Meanwhile, its utilization rate should increase to above 60% from 50% in FY14.

Revenue to increase consistently, driven by TV business Bt m 4,500 4,273 4,253

4,000 3,705 3,456 3,405 3,500 3,249

3,000 2,690 2,795 2,500 2,250

2,000

1,500

1,000

500

0 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F Showbiz Music distribution Media Source: Company data, Krungsri Securities

High license fee is not an issue. RS won the bid with a total value of Bt2.27m. This will be recognized as amortization expense of c. Bt151m per year over 15 years. This does not include broadcasting expense (MUX) of c.Bt60m per year to the Thai PBS channel. RS also broadcasts through satellite with expense of c.Bt40m per year. These expenses will be recorded by Ch. 8. We believe RS’s strategy of bidding for digital TV is aimed at ensuring business continuity, as digital TV has a longer term license (15 years) vs satellite TV (one year). Furthermore, satellite TV has higher regulatory risk than digital TV, and it has limited viewers as it does not have to follow the must-carry rule. We do not believe high license fees are an issue as in the TV business. Content production is the major cost. RS plans to spend Bt500-600m per year for Ch. 8 vs Bt241m per year for broadcasting costs (including satellite platform).

TV business (CH8) cost proportion in FY16F Forecasted GPM of each business 40.0% 4% 3% 35.0% 10% 30.0% 4% 25.0%

20.0% 54% 15.0% 25% 10.0%

5.0%

0.0% Production Broadcasting Sharing NBTC Staff Depreciation Others Media Music distribution Showbiz Source: Company and Krungsri Securities Source: Company and Krungsri Securities

KrungsriSecurities Research 22

Initiation Coverage | RS September1, 2015

Increase margins through discontinued unprofitable businesses and cutting costs of music business. We expect TV business margins to improve from the expiration of two loss-making businesses, the La Liga football programme (Spanish 1st division football league) and 91.5 MHz FM radio. The company expects to cut production costs by reducing physical album production and merging string and country music businesses to reduce back office costs.

Restructuring music business. RS has merged its string and upcountry business to share back office costs and use only online channels to sell string music. This new model could help RS reduce costs while it would become an upstream production house that feeds content to its own media business, including TV and radio. RS targets to cut production costs to maintain GPM at c.50% of total revenue. We believe GPM of the music business will be maintained at 50% in FY15F/FY16F from 60% in the past two years.

In-house production is a key strength. RS is known for high-quality content,and we do not believe this is going to change. Although production cost is the major cost for broadcasting firms, having its own in-house production is better for broadcasting companies as they can control quality and cost. RS claims it can reduce production costs by 20- 30% vs buying content from out-bound production houses.

Various channels to cater to evolving consumer demand. RS strategically expands its channel range to meet consumer demand. Ch. 8 serves the upper level segment with an advertising rate of c.Bt10,000- 30,000 per minute, and Ch. 2 on satellite TV serves the SME segment (mid-level) with an advertising rate of c.Bt5,000-8,000 per minute. Sabaidee TV and You Channel are tools to support new talent for the music business.

Having both satellite and digital TV channels to meet demand. We believe RS’s core strength lies in its ability to broadcast on both systems. We believe it made a good decision to bid for a variety channel under the must-carry rule, all cable and satellite set-top boxes have to carry free-TV (24 channels), which increases the number of viewers. This results in higher TV ratings and higher advertising fees. During the transformation period from satellite to digital TV of Ch. 8, the number of viewers surged by 30%.

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Initiation Coverage | RS September 1, 2015

The Forgotten Rising Star – OUTPERFORM with a Bt12.5/sh TP

We rate RS OUTPERFORM with Bt12.5/sh TP derived from DCF valuation with 9% WACC and 3% terminal growth. we believe the company will be able to boost its advertising rate per minute to an average Bt25,000 in FY15F and Bt32,000 in FY16F (vs Bt12,000 in FY14), while its utilization rate will increase to above 65% in FY16F from 50% in FY14. We therefore estimate earnings to grow at a four-year CAGR of 6.1% during FY14-18F.

Once the weak domestic sentiment improves, we believe RS will be able to increase ad rates and utilization rate, which will result in long-term revenue and earnings growth. Ch. 8 is ranked No. 4 out of 24 channels and is No. 2 in new digital TV following WORK. We believe media agencies have to put Ch. 8 on their main list (top 5 Thai TV) apart from channels 3, 7, WORK, and MONO. .

Equity value per share Terminal growth 0.00% 1.00% 1.50% 2.00% 2.50% 3.00% W 8.0% 11.4 12.0 12.4 12.9 13.5 14.1 9.0% 10.7 11.1 11.4 11.8 12.1 12.5 A 10.0% 10.1 10.5 10.7 10.9 11.2 11.5 C 11.0% 9.7 10.0 10.1 10.3 10.5 10.7 C 12.0% 9.3 9.5 9.7 9.8 10.0 10.1 Source: Company data,Krungsri Securities

Assumption 2015 2016 2017 2018 Revenue forecast Media 2,692 3,152 3,425 3,864 Music distribution 366 293 205 205 Showbiz 321 273 232 232

CH8 assumption Advertising (Baht) 25,000 34,000 38,000 45,000 Utilization 60% 70% 70% 75%

GPM a ssumption Media 5.4% 42.3% 44.9% 48.8% Music distribution 38.7% 25.5% 20.9% 20.9% Showbiz 10.0% 10.0% 10.0% 10.0% Source: Company data,Krungsri Securities

KrungsriSecurities Research 24

Initiation Coverage | RS September1, 2015

P/E Band P/BV Band

Source: Bloomberg, Krungsri Securities Source: Bloomberg,Krungsri Securities

KrungsriSecurities Research 25

Initiation Coverage | RS September 1, 2015

INCOME STATEMENT (Btm) 2013 2014 2015F 2016F 2017F Turnover 3,461 4,306 3,384 3,723 3,867 Cost of sales (COGS) -1,831 -2,044 -1,786 -1,826 -1,850 Depreciation &amoritisation -278 -880 -545 -526 -498 Gross profit 1,352 1,382 1,053 1,370 1,520 S&A expenses -873 -857 -805 -938 -936 Operating profit 479 524 248 432 584 Other operating income 0 0 0 0 0 EBIT 479 524 248 432 584 Interest expense -17 -27 -94 -87 -72 Other income 14 18 20 22 23 Pre-tax profit 476 516 174 368 535 Income tax on company & subsidiaries -84 -118 -31 -74 -107 Profit after tax 392 398 143 294 428 Minority interests 2 -27 0 0 0 Share of associate net income 0 0 0 0 0 Preferred dividends 0 0 0 0 0 Recurring attributable net profit 394 371 143 294 428 Extraordinary items 0 0 0 0 0 Reported net profit 394 371 143 294 428

Shares in issue (Y/E, m) 1,005 1,005 1,005 1,005 1,005 EPS (excluding extraordinary items, Bt) 0.39 0.37 0.14 0.29 0.43 DPS (Bt) 0.27 0.31 0.09 0.18 0.26 DPS/EPS (%) 69% 84% 60% 60% 60%

CASH FLOW (Btm) 2013 2014 2015F 2016F 2017F Pre-tax profit (after extraodinary items) 476 516 174 368 535 Depreciation &amortisation 278 880 545 526 498 EBITDA 754 1,396 719 894 1,033 Notional cash taxes on ungeared operations -146 -156 -31 -74 -107 Net change in working capital -11 -228 156 13 -29 CAPEX -435 -384 -530 -200 -200 Operating free cashflow (OpFCF) 162 628 313 633 697 Net interest income adjusted for tax impact -5 -3 0 0 0 Net free cashflow (NetFCF) 157 625 313 633 697 Non-operating income (net of tax) -8 -21 -144 0 0 Equity income from associates 0 0 0 0 0 Investments 0 0 0 0 0 Net change in other assets/liabilities 357 77 -173 7 -7 Other items 11 -7 283 239 225 Residual cashflow (RCF) 516 674 279 879 915

Dividends -272 -311 -86 -176 -257 Equity capital raised 148 0 0 0 0 Other items -134 -554 -105 -238 -370 Cashflow from financing -258 -865 -191 -414 -627

Net change in cash 259 -191 88 465 287 Net cash/(debt) at YS 314 572 382 470 934 Ending cash 572 382 470 934 1,222

KrungsriSecurities Research 26

Initiation Coverage | RS September1, 2015

BALANCE SHEET (Btm) 2013 2014 2015F 2016F 2017F Cash & equivalents 572 382 470 934 1,222 A/C receivable 776 863 772 765 793 Inventory 63 160 93 94 94 Others 337 322 342 366 376 Total Current Assets 1,748 1,726 1,677 2,159 2,485 Property and equipment 310 313 603 277 -21 Investments & associates 5 5 5 5 5 Other assets 202 303 203 203 203 Goodwill 721 2,466 2,012 1,862 1,712 Total Assets 2,986 4,814 4,500 4,506 4,384

Short-term debt 295 303 487 637 538 A/C payable 187 153 151 157 156 Other current liabilities 841 934 689 720 723 Total Current Liabilities 1,322 1,389 1,327 1,513 1,417 Long-term debt 13 1,589 1,396 1,096 896 Other liabilities 81 77 105 108 111 Total Liabilities 1,416 3,055 2,829 2,717 2,424

Share capital 954 1,022 954 954 954 Share premium 194 255 194 194 194 Revaluation surplus -17 -17 -17 -17 -17 Translation adjustment 83 70 83 83 83 Retained earnings 353 398 455 572 743 Total ordinary equity 1,567 1,728 1,669 1,786 1,957 Preferred equity 0 0 0 0 0 Minorities 3 30 3 3 3 Total equity & minorities 1,570 1,759 1,672 1,789 1,960

Accumulated depreciation 919 1,682 2,227 2,753 3,251 BV per ordinary share (Y/E, Bt) 1.56 1.75 1.66 1.78 1.95 Adjusted book value ps (Y/E, Bt) 1.56 1.75 1.66 1.78 1.95

RATIOS (%) 2013 2014 2015F 2016F 2017F Growth Turnover 23.1 24.4 (21.4) 10.0 3.9 EBITDA 54.0 85.1 (48.5) 24.4 15.6 EBIT 36.0 9.4 (52.7) 74.3 35.1 Recurring net profit 38.8 (6.0) (61.6) 106.4 45.5 EPS (before extraordinary items) 38.8 (6.0) (61.6) 106.4 45.5 EPS 38.8 (6.0) (61.6) 106.4 45.5 DPS 107.9 14.5 (72.5) 106.4 45.5

Accounting ratios Gross profit margin 39.1 32.1 31.1 36.8 39.3 Operating profit margin 13.9 12.2 7.3 11.6 15.1 Net profit margin 11.4 8.6 4.2 7.9 11.1 Turnover/avg total assets (x) 1.2 1.1 0.7 0.8 0.9 ROA 14.2 9.5 3.1 6.5 9.6 ROE 27.5 22.3 8.3 17.0 22.8 S&A/turnover 25.2 19.9 23.8 25.2 24.2

KrungsriSecurities Research 27 Corporate Governance Report of Thai Listed Companies 2014

Thai Institute of Director (IOD)

BAFS BCP BTS CPN EGCO GRAMMY HANA INTUCH IRPC IVL KBANK KKP KTB MINT PSL PTT PTTEP PTTGC SAMART SAMTEL SAT SC SCB SE-ED SIM SPALI TISCO TMB TOP To recognize well performers, the list of companies attaining "Good", "Very Good" and "Excellent" levels of recognition without regulatory notation (from January 1, 2013 to October 22, 2014) is publicized.

AAV ACAP ADVANC ANAN AOT ASIMAR ASK ASP BANPU BAY BBL BECL BIGC BKI BLA BMCL BROOK CENTEL CFRESH CIMBT CK CNT CPF CSL DELTA DRT DTAC DTC EASTW EE ERW GBX GC GFPT GUNKUL HEMRAJ HMPRO ICC KCE KSL LANNA LH LHBANK LOXLEY LPN MACO MC MCOT NBC NCH NINE NKI NMG NSI OCC OFM PAP PE PG PHOL PJW PM PPS PR PRANDA PS PT QH RATCH ROBINS RS S&J SAMCO SCC SINGER SIS SITHAI SNC SNP SPI SSF SSI SSSC STA SVI TCAP TF THAI THANI THCOM TIP TIPCO TK TKT TNITY TNL TOG TRC TRUE TSTE TSTH TTA TTW TVO UAC VGI VNT WACOAL

2S AF AH AHC AIT AJ AKP AKR AMANAH AMARIN AMATA AP APCO APCS AQUA ARIP AS ASIA AYUD BEAUTY BEC BFIT BH BJC BJCHI BOL BTNC BWG CCET CGD CGS CHOW CI CKP CM CMR CSC CSP CSS DCC DEMCO DNA EA ESSO FE FORTH FPI GENCO GL GLOBAL GLOW GOLD HOTPOT HTC HTECH HYDRO IFS IHL INET IRC IRCP ITD KBS KGI KKC KTC L&E LRH LST MAJOR MAKRO MATCH MBK MBKET MEGA MFC MFEC MJD MODERN MONO MOONG MPG MTI NC NTV NUSA NWR NYT OGC OISHI PACE PATO PB PDI PICO PPM PPP PREB PRG PRIN PTG QLT QTC RCL SABINA SALEE SCBLIF SCCC SCG SEAFCO SEAOIL SFP SIAM SIRI SKR SMG SMK SMPC SMT SOLAR SPC SPCG SPPT SST STANLY STEC STPI SUC SWC SYMC SYNEX SYNTEC TASCO TBSP TEAM TFD TFI THANA THIP THREL TIC TICON TIW TKS TLUXE TMI TMT TNDT TPC TPCORP TRT TRU TSC TTCL TUF TVD TWFP UMI UP UPF UPOIC UT UV UWC VIH WAVE WHA WIN WINNER YUASA ZMICO Score Range Number of Logos Description 90-100 Excellent 80-89 Very Good 70-79 Good 60-69 Satisfactory 50-59 Pass Below 50 No logo given N/A

Disclaimer The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand, and the Market of Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. Krungsri Securities Public Company Limited does not confirm nor certify the accuracy of such survey result.

Krungsri Securities Public Company Limited

Headquarters 898 Ploenchit Tower, 3rd Floor , Ploenchit Road, Lumpini Pathumwan, Bangkok 10330 Tel: 0-2659-7000 Fax: 0-2658-5699 Internet Trading: 0-2659-7777 Branches Emporium Nakhon Pathom 662 Emporium Tower, Fl. 10, Sukhumvit 24 Road 67/1 Ratchadamnoen Road, Tambol Phra Pathom Jaedee, Klongton, Klongtoey, Bangkok 10110 Amphur Muang, Nakhon Pathom 73000 Tel: 0-2695-4500 Fax: 0-2695-4599 Tel: 0-3427-5500-7 Fax: 0-3421-8989

Central Bangna Suphanburi 589/151 Central City Tower 1 Office, Fl. 27 249/171-172 Moo 5 Tambol Ta Rahad, Bangna-Trad Road, Bangna, Bangkok 10260 Amphur Muang, Suphanburi, 72000 Tel: 0-2763-2000 Fax: 0-2399-1448 Tel: 0-3550-1234 Fax: 0-3552-2449

Rama II Nakhon Ratchasima 111/917-919 Rama II Road, Smaedum, 168 Chomphon Road, Tambol Nai Muang, Bangkhuntien, Bangkok 10150 Amphur Muang Nakhon Ratchasima, Tel: 0-2895-9575 Fax: 0-2895-9557 Nakhon Ratchasima 30000 Tel: 0-4425-1211-4 Fax: 0-4425-1215 Vibhavadi-rangsit Bank of Ayudhya Public Company Limited Khon Kaen 123 Suntowers (B) Building, Vibhavadirangsit Road, 114 Sri Chan Road, Tambol Nai Muang, Jompol, Jatujak, Bangkok 10900 Amphur Muang, Khon Kaen 40000 Tel: 0-2273-8388 Fax: 0-2273-8399 Tel: 0-4322-6120 Fax: 0-4322-6180

Chonburi Chiang Mai 64/17 Sukhumvit Road, Tambol Bang Plasoi, 70 Chang Phuak Road, Tambol Sri Phum Amphur Muang, Chonburi 20000 Amphur Muang, Chiang Mai 50200 Tel: 0-3879-0430 Fax: 0-3879-0425 Tel: 0-5321-9234 Fax: 0-5321-9247

Hat Yai Branch Chiang Rai 90-92-94 Nipat U Tit Nueng Road,Tambol Hat Yai, 231-232 Thamalai Road, Tambol Wiang, Amphur Hat Yai, Songkhla 90110 Amphur Muang, Chiang Rai 57000 Tel: 0-7422-1229 Fax: 0-7422-1411 Tel: 0-5371-6489 Fax: 0-5371-6490

Phitsanulok 275/1 Phichaisongkram Road, Tambol Nai Muang, Amphur Muang, Phitsanulok 65000 Tel: 0-5530 -3360 Fax: 0-5530 -2580

Analyst Team Sector Coverage Central line E-mail Naphat Chantaraserekul Energy, Petrochemical, Construction 662-659-7000 ext. 5000 [email protected] Kittisorn Pruitipat, CFA, FRM Property, Contractor, ICT 662-659-7000 ext. 5019 [email protected] Jesada Techahusdin, CFA Banking 662-659-7000 ext. 5004 [email protected] Sunthorn Thongthip Strategy 662-659-7000 ext. 5009 [email protected] Kaweewit Thawilwithayanon Small cap Energy, Petrochemical 662-659-7000 ext. 5010 [email protected] Artit Jansawang Small cap, Mai 662-659-7000 ext. 5005 [email protected] Worrapong Tuntiwutthipong Mid cap, Electronic 662-659-7000 ext. 5016 [email protected] Songklod Wongchai Investment Strategy 662-659-7000 ext. 5003 [email protected] Apisak Limthumrongkul Technical 662-659-7000 ext. 5007 [email protected] Fax 662-658-5643

Definition of Ratings OUTPERFORM - Stocks with an expected capital gain above 10% in the next 12 months for small-caps, above 5% for big-caps NEUTRAL - Stocks with an expected capital gain between -10% and +10% in the next 12 months for small-caps, -5% to +5% for big-caps UNDERPERFORM - Stocks with an expected capital gain below 10% in the next 12 months for small-caps, below 5% for big-caps