Thailand Company Guide Workpoint Entertainment PCL Version 3 | Bloomberg: WORK TB | Reuters: WORK.BK Refer to important disclosures at the end of this report DBS Group Research . Equity 6 Feb 2017 HOLD (Downgrade from BUY) New rating record in Jan 17 Last Traded Price ( 3 Feb 2017): Bt51.75 (SET : 1,582.95) rd Price Target 12-mth: Bt52.00 (0% upside) (Prev Bt45.00) 3 ranking in Thailand’s Digital TV space. WORK has been Potential Catalyst: New hit programmes and improving margins continuously climbing the rating ladder and is now ranked third Where we differ: In line in Thailand’s Digital TV space. Its rating increased to 1.49% in Analyst Jan 17 from 1.33% in 2016 and 0.85% in 2015. WORK is well Nantika WIANGPHOEM +66 26577836 [email protected] recognised by Thai viewers with regard to its creativity and Chanpen SIRITHANARATTANAKUL +662 657 7824 content quality. Many of its programmes, especially variety [email protected] shows, game shows and quiz shows, are very popular. The key What’s New concept of WORK’s programmes revolves around knowledge, The effects from mourning period will turn 4Q16F wit, fun and entertainment. With its strong position, we believe earnings to loss of Bt85m; cut FY16F earnings by that WORK will continue to gain higher ratings and maintain its 34% to reflect the weak results third position. More diversified audience base. WORK’s programmes are FY17F outlook and long-term outlook is expected designed to serve all types of audiences, regardless of age, to recover stronger than expected; lift earnings gender and geography. As a result, it seems to have more forecast by 9% in FY17F and 10% in FY18F potential in expanding its audience base vs other channels that Downgrade from BUY to HOLD with higher TP of focus on only one specific group. Hence, it is likely to fall in the Bt52, based on DCF valuation radar of ad agencies that are interested in purchasing ad time for reaching out to a generic audience group. Doubling earnings in 2017. We expect WORK’s earnings to Price Relative continuously record new highs in the coming years. The robust Bt Relative Index growth will be driven by i) higher average ad rates, from 63.3 206 c.Bt36,000 per minute in 2015 to Bt50,000 in 2016 and 186 53.3 166 Bt60,000 in 2017 (other top two leaders’ average ad rates range 146 43.3 126 33.3 106 from c.Bt70,000-85,000 per minute), thanks to the increase in 86 23.3 66 WORK’s rating, and ii) better economies of scale, as c.90% of its 13.3 46 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 costs are fixed (with low variable costs) – which will boost its Workpoint Entertainment PCL (LHS) Relative SET (RHS) margin from 42.5% in 2015 to 45.1% in 2016 and 45.4% in 2017. As a result, we believe WORK will deliver solid earnings Forecasts and Valuation FY Dec (Bt m) 2015A 2016F 2017F 2018F growth of 13% in FY16 and 157% in FY17. Revenue 2,388 2,253 3,590 3,993 EBITDA 849 886 1,247 1,368 Valuation: Pre-tax Profit 210 235 602 726 Our new target price of Bt52 is based on DCF valuation with a Net Profit 164 185 475 573 WACC of 8.8%. Net Pft (Pre Ex.) 164 185 475 573 Net Pft Gth (Pre-ex) (%) nm 12.8 157.1 20.7 EPS (Bt) 0.39 0.44 1.11 1.32 Key Risks to Our View: EPS Pre Ex. (Bt) 0.39 0.44 1.11 1.32 Intense competition, changes in audience preferences, market- EPS Gth Pre Ex (%) nm 11 154 19 share expansion of other types of media and reliance on key Diluted EPS (Bt) 0.39 0.44 1.11 1.32 personnel. Net DPS (Bt) 0.34 0.31 0.78 0.93 BV Per Share (Bt) 6.77 7.23 7.94 8.70 PE (X) 131.2 118.4 46.6 39.1 At A Glance PE Pre Ex. (X) 131.2 118.4 46.6 39.1 Issued Capital (m shrs) 417 P/Cash Flow (X) 36.6 32.7 22.7 20.3 Mkt. Cap (Btm/US$m) 21,593 / 616 EV/EBITDA (X) 24.7 24.4 17.4 16.0 Major Shareholders (%) Net Div Yield (%) 0.7 0.6 1.5 1.8 Phanya Nirunkul (%) 25.91 P/Book Value (X) 7.6 7.2 6.5 5.9 Prapas Cholsaranon (%) 25.91 Net Debt/Equity (X) CASH CASH CASH CASH Nortrust Nominees Ltd. (%) 10.74 ROAE (%) 7.3 6.3 14.7 16.0 Free Float (%) 33.75 Earnings Rev (%): (34) 9 10 3m Avg. Daily Val (US$m) 1.8 Consensus EPS (Bt): 0.48 1.15 1.65 Other Broker Recs: B: 13 S: 0 H: 1 ICB Industry : Consumer Services / Media Source of all data on this page: Company, DBS Vickers, Bloomberg Finance L.P ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:CS, PY Company Guide Workpoint Entertainment PCL WHAT’S NEW Brighter FY17 ahead but stretched valuation is a concern 4Q16F is expected to be soft due to mourning period: WORK is programmes will enable WORK to achieve sustainable growth expected to register a core loss of Bt85m in 4Q16F, taking full- in terms of average ratings and ad rates. WORK targets an year net profit to Bt186m (+13% y-o-y). The 4Q16F core loss average ad rate of Bt62,000 in 2017 vs Bt55,000 previously was due to the suspension of normal TV programmes and (we conservatively assume an ad rate of Bt60,000 in our model advertisements during the one-month mourning period (starting due to the risk of high competition). from 13 October 16). Revenue fell significantly, while fixed costs Revised forecast to reflect the effect of the mourning period in stayed constant in 4Q16F. However, the effect of the mourning FY16 and better-than-expected outlook from FY17 onwards. period was only temporary and its operating environment We cut our FY16 earnings forecast by 34% for the weak returned to normal in Jan 17. performance in 4Q16 arising from the suspension of normal TV programmes and advertisements during the mourning FY17 performance will be better than expected: After period. On the other hand, we bump up our earnings forecast launching several new popular programmes (such as “The in FY17 and FY18 by 9% and 10%, respectively, for higher- Mask Singer”, “Let me in Thailand 2”, Main Thing Kham than-expected average ad rates. Dek”, Mai Mot Ni”, etc.) in 2H16, WORK’s rating has increased continuously (and reached 1.49% in Jan 17). Its hit Downgrade from BUY to HOLD, with higher TP of Bt52. Our programmes have garnered high ratings, ranging from 5-8%, new TP of Bt52 is based on DCF valuation with a WACC of which allowed WORK to sell advertisements outside the 8.8%. As the market has already priced in the strong growth package rates – thus resulting in higher average ad rates. outlook, we downgrade our call from BUY to HOLD. In 2017, WORK plans to launch new big format programmes, including: “We kids Thailand”, “My Little TV”, “Let me in Thailand 3”, “The Mask Singer 2” and “Bao Young Blood Season 2”. The continuous efforts in launching new hit Quarterly / Interim Income Statement (Btm) FY Dec (Btm) 4Q15 3Q16 4Q16F Chg y-o-y Chg q-o-q 2015 2016F Chg y-o-y Sales 641 776 128 -80% -83% 2,388 2,253 -6% Cost of Goods Sold (345) (430) (80) -77% -81% (1,372) (1,238) -10% Gross Profit 296 347 48 -84% -86% 1,015 1,015 0% SGA Expenses (251) (201) (167) -33% -17% (754) (746) -1% Operating profit 45 146 (119) -363% -182% 261 269 3% Other Income/expense 44 25 13 -71% -48% 66 63 -6% Share profit / loss 11 1 15 35% 986% 14 14 -6% EBIT 101 172 (92) -191% -153% 342 345 1% Interest expense (72) (28) (20) -73% -30% (132) (110) -17% Pretax profit 29 143 (111) -489% -178% 210 235 12% Income Tax (10) (27) 18 -283% -166% (45) (50) 10% Minority interest (2) (8) 8 -468% -192% (1) (1) 13% Norm. Profit 17 108 (85) -605% -179% 164 186 13% Extra items 0 0 0 n.a. n.a. 0 0 n.a. Net Profit 17 108 (85) -605% -179% 164 186 13% EPS (Bt) 0.04 0.26 (0) -624% -182% 0.39 0.44 11% Nomalised Profit 17 108 (85) -605% -179% 164 186 13% Nomalised EPS (Bt) 0.04 0.26 (0) -624% -182% 0.39 0.44 11% Gross Margin 46.2% 44.6% 37.3% 42.5% 45.1% SGA/ Sales 39.2% 25.9% 130.3% 31.6% 33.1% Operating Margin 7.1% 18.8% -93.0% 11.0% 11.9% Net Margin 2.6% 13.9% -66.4% 6.9% 8.2% Normalised Net Margin 2.6% 13.9% -66.4% 6.9% 8.2% Source of all data: Company, DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 2 Company Guide Workpoint Entertainment PCL Top 3 highest-rating channels CRITICAL DATA POINTS TO WATCH % 5.0 Earnings Drivers: 4.5 4.0 Higher average ad rates from rising rating and increase in hit 3.5 2.9 programmes. Normally, WORK sells ad time to agencies under 3.0 2.5 2.13 packages whose rates will be fixed under agreements.