Thailand Company Guide Workpoint Entertainment PCL Version 5 | Bloomberg: WORK TB | Reuters: WORK.BK Refer to important disclosures at the end of this report DBS Group Research . Equity 26 Apr 2017 BUY (Upgrade from HOLD) The show must go on Last Traded Price ( 25 Apr 2017): Bt53.50 (SET : 1,562.27) Upgrade from HOLD to BUY with a higher TP of Bt62. WORK Price Target 12-mth: Bt62.00 (16% upside) (Prev Bt52.00) has been continuously climbing the rating ladder and is now Potential Catalyst: New hit programmes and improving margin ranked third in Thailand’s digital TV space. Its rating increased to Where we differ: Below consensus due to more conservative costs 1.55% in March 2017, from 1.33% in 2016 and 0.85% in Analyst 2015. WORK is well recognised by Thai viewers for its creativity Nantika WIANGPHOEM +66 26577836 [email protected] and content quality. Many of its programmes, especially variety shows, game shows and quiz shows, are very popular. The key What’s New concept of WORK’s programmes revolves around knowledge, 3Q17E core earnings expected to rise to Bt83m wit, fun and entertainment. With its strong position, we believe (+190% y-o-y); fully recover from 4Q16 loss that WORK will continue to gain higher ratings and maintain its third position. Regarding the newest information received from New hit programmes have enhanced overall the company, we have reflected the better-than-expected ratings and ad rates; revised earnings forecast to outlook in terms of the average ad rates in our forecast. As a reflect higher-than-expected ad rates result, we upgrade our HOLD call to BUY with a new TP of Bt62. Upgrade to BUY with a new DCF-based TP of Bt62 More diversified audience base. WORK’s programmes are designed to serve all types of audiences regardless of age, gender and geography. As a result, it appears to have more potential to expand its audience base vs other channels that Price Relative focus on only one specific group. Hence, it is likely to fall on the Bt Relative Index radar of ad agencies that are interested in purchasing ad time to 63.3 205 185 reach out to a generic audience group. 53.3 165 145 43.3 Tripling earnings in the next two years. We expect WORK’s 125 33.3 105 earnings to continuously record new highs in the coming years. 85 23.3 65 The robust growth will be driven by i) higher average ad rates, 13.3 45 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 from c.Bt50,000 in 2016 to Bt62,000 in 2017 and Bt75,000 in Workpoint Entertainment PCL (LHS) Relative SET (RHS) 2018, thanks to the increase in WORK’s rating, and ii) better Forecasts and Valuation economies of scale, as c.90% of its costs are fixed (with low FY Dec (Bt m) 2015A 2016A 2017F 2018F variable costs) – which will boost its margin from 43.2% in 2016 Revenue 2,388 2,634 4,248 5,104 to 46.2% in 2017 and 46.3% in 2018. As a result, we believe EBITDA 849 917 1,356 1,559 WORK will deliver solid earnings growth of 172% in FY17 and Pre-tax Profit 210 255 704 919 29% in FY18. Net Profit 164 199 546 713 Net Pft (Pre Ex.) 164 199 546 713 Net Pft Gth (Pre-ex) (%) nm 21.4 175.0 30.6 Valuation: EPS (Bt) 0.39 0.48 1.29 1.67 Our target price of Bt62 is based on DCF valuation with a EPS Pre Ex. (Bt) 0.39 0.48 1.29 1.67 EPS Gth Pre Ex (%) (1,046) 21 172 29 WACC of 8.8%. Diluted EPS (Bt) 0.39 0.48 1.29 1.67 Net DPS (Bt) 0.34 0.27 0.91 1.17 Key Risks to Our View: BV Per Share (Bt) 6.67 7.14 7.91 8.78 Intense competition, changes in audience preferences, market- PE (X) 135.7 112.4 41.4 32.1 PE Pre Ex. (X) 135.7 112.4 41.4 32.1 share expansion of other types of media and reliance on key P/Cash Flow (X) 55.9 38.4 24.5 18.9 personnel. EV/EBITDA (X) 25.6 23.9 16.5 14.4 Net Div Yield (%) 0.6 0.5 1.7 2.2 At A Glance P/Book Value (X) 8.0 7.5 6.8 6.1 Issued Capital (m shrs) 420 Net Debt/Equity (X) CASH CASH CASH CASH Mkt. Cap (Btm/US$m) 22,453 / 654 ROAE (%) 7.4 6.9 17.3 20.1 Major Shareholders (%) Earnings Rev (%): 15 25 Phanya Nirunkul (%) 25.91 Consensus EPS (Bt): 1.28 1.87 Prapas Cholsaranon (%) 25.91 Other Broker Recs: B: 11 S: 0 H: 4 Nortrust Nominees Ltd. (%) 10.74 Source of all data on this page: Company, DBSVTH, Bloomberg Finance Free Float (%) 33.75 L.P 3m Avg. Daily Val (US$m) 1.5 ICB Industry : Consumer Services / Media ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa:CS, PY Company Guide Workpoint Entertainment PCL WHAT’S NEW Strong 1Q17E earnings is expected 1Q17E net profit is expected to have fully recovered from Firm outlook continues: WORK’s rating had reached 1.55% in mourning period: We expect to post a core profit of Bt83m in March 2017 behind the second ranked TV station’s rating of 1Q17E (+190% y-o-y), turning from a loss of Bt72 in 4Q16 due 1.84%. WORK’s new high rating was supported by the to the suspension of TV programmes during the mourning continuous launch of several new popular programmes (such period. The strong y-o-y improvement in 1Q17E results was as “The Mask Singer” [1Q17 rating 7.91%], “I can see you mainly from i) the sharp rise in ad rate from Bt45,000-46,000 voice Thailand” [1Q17 rating 6.51%], “Mic Thong Kham Dek” per minute in 1Q16 to Bt58,000-60,000 per minute in 1Q17E, [1Q17 rating of 5.49%], etc. The higher rating allowed WORK ii) the improving gross margin from 41.7% to 46.0% in 1Q17E, to sell advertisements outside the normal package, which thanks to better economies of scale, and iii) the lower SGA-to- helped boost its average ad rates. sales of 31.0% vs 33.1% last year. WORK plans to launch the following seasons of the current hit programmes as well as the new big format programmes Revised earnings forecast by 15% for FY17 and 25% for FY18. (including “We kids Thailand”, “My Little TV”, “Let me in Previously, due to the uncertainty of the abnormal situation as Thailand 3”, “The Mask Singer 2” and “Bao Young Blood well as the intense competition between TV stations, we Season 2”) in 2017. We believe the effort to develop new hit conservatively assumed FY17 ad rate of Bt60,000 with 10% programmes will enable WORK to enjoy sustainable average increase in each of the next five years which was below rating and ad rate growth in the future. management's guidance of Bt62,000 for FY17. However, from the latest information received from the company, the ad Upgrade from HOLD to BUY, with a higher TP of Bt62. Our new rate in 1Q17 had already reached Bt58,000-60,000 per minute TP of Bt62 is based on DCF valuation with a WACC of 8.8%. which is convincing that the whole year's average ad rate of Given the potential upside and the strong growth outlook, we Bt62,000 per minute is achievable. Hence, we have revised up upgrade our call from HOLD to BUY. our forecast by using the higher average ad rate of Bt62,000 per minute in 2017 and Bt75,000 per minute in 2018. Quarterly / Interim Income Statement (Btm) FY Dec (Btm) 1Q16 4Q16 1Q17F Chg y-o-y Chg q-o-q Sales 547 509 683 25% 34% Cost of Goods Sold (319) (339) (369) 16% 9% Gross Profit 228 170 314 38% 85% SGA Expenses (181) (244) (212) 17% -13% Operating profit 47 (73) 103 117% -240% Other Income/expense 22 1 16 -28% 1894% Share profit / loss (2) 3 14 -841% 336% EBIT 68 (69) 133 97% -292% Interest expense (32) (22) (22) -30% 0% Pretax profit 36 (92) 111 210% -221% Income Tax (6) 15 (21) 231% -235% Minority interest (1) 4 (6) 848% -255% Norm. Profit 29 (72) 83 190% -216% Extra items 0 0 0 n.a. n.a. Net Profit 29 (72) 83 190% -216% EPS (Bt) 0.07 -0.17 0.20 190% -216% Nomalised Profit 29 -72 83 190% -216% Gross Margin 41.7% 33.4% 46.0% SGA/ Sales 33.1% 47.9% 31.0% Operating Margin 8.6% -14.4% 15.0% Net Margin 5.3% -14.2% 12.2% Normalised Net Margin 5.3% -14.2% 12.2% Source of all data: Company, DBSVTH ASIAN INSIGHTS VICKERS SECURITIES Page 2 Company Guide Workpoint Entertainment PCL Top 3 highest-rating channels CRITICAL DATA POINTS TO WATCH % 4.5 4.0 Earnings Drivers: 3.5 2.969 Higher average ad rates from rising ratings and increase in hit 3.0 2.605 programmes. Normally, WORK sells ad time to agencies under 2.5 2.84 packages where rates will be fixed as per agreements. However, 2.0 1.15 1.19 1.16 1.12 1.5 0.98 1.08 0.78 0.85 0.8 in 4Q15, WORK had some hit programmes whose ad time was 1.0 0.74 sold separately from the standard packages and based on the 0.5 Cost Per Rating Point (CPRP).