Results Review Thailand 4Q16: above expectations 24 February 2017 Communications | Media Buy (Maintained) Workpoint Entertainment Target Price: THB60.00 Price: THB50.50 Outlook Brightens Market Cap: USD603m Bloomberg Ticker: WORK TB The worst is over for Workpoint after it booked a net loss of THB72m in Share Data 4Q16 (during the strict mourning period). We have taken note of some Avg Daily Turnover (THB/USD) 54.3m/1.53m recent positive signs. Its overall TV ratings again hit a record high of 1.51 52-wk Price low/high (THB) 28.5 - 53.3 this month, while its channel was rated no. 1 for the prime time slot in Bangkok. Our FY17 earnings growth forecast of 170% YoY is based on a Free Float (%) 34 TV ratings of 1.55. Also, there is the likelihood that Workpoint TV would Shares outstanding (m) 417 beat Channel 3, the market leader in terms of TV ratings within 2-3 years. Estimated Return 19% Our media sector Top Pick is still a BUY. Our DCF-based TP is THB60.00 (19% upside). Shareholders (%) Mr Prapas Cholsaranon 25.9 2017 outlook remains positive. We re-affirm our assumptions that Workpoint Mr Phanya Nirankul 25.9 Entertainment’s (Workpoint) channel is to achieve TV ratings of 1.55 and an Mindo Asia Investments Ltd 10.7 average advertising rate of THB67,000/minute (+20% YoY). This is because its current rates already average THB62,000/minute while its TV ratings are at Share Performance (%) 1.51. Hence, we expect its revenue and net profit to surge by 48% and 170% YTD 1m 3m 6m 12m respectively. Absolute 14.8 0.0 33.8 32.9 47.4 TV rating reaches its peak. Its Workpoint TV channel’s ratings already hit 1.51 Relative 12.9 (0.6) 28.0 30.8 28.3 this month, which is a record high. Moreover, its ranking for the primetime slot Source: Bloomberg reached the top spot for the Bangkok area, thanks to new successful TV programmes that were launched early this year. Workpoint Entertainment (WORK TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) Maintain BUY. We strongly believe the worst is over for the company. Looking 56 139 51 127 forward, we see plenty of positives on the horizon. We also believe that 46 116 41 104 Workpoint TV is likely to beat Channel 3 in terms of TV ratings within 2-3 years. 36 92 Maintain BUY, with an unchanged TP of THB60.00. The stock remains our Top 31 81 1826 69 Pick for Thailand’s media sector. 16 14 4Q16 results announced on 23 Feb were better than expected 12 10 8 (THBm) 4Q16 3Q16 QoQ 4Q15 YoY Comments 6 4 Revenue 509 776 -34.5% 687 -26.0% Due to the mourning period 2 Vol m Gross profit 170 347 -50.9% 333 -48.9% Fixed costs were high Oct-16 Apr-16 Jun-16 Feb-16 Dec-16 GPM (%) 33.4% 44.6% 48.4% Aug-16 EBITDA 83 308 -73.0% 230 63.8% Source: Bloomberg EBITDA (%) 16.3% 39.7% 33.4% Core earnings (72) 108 -166.7% 27 n.a. Better than expected Source: Company data, RHB 4Q16 and 2016 results review. Due to the strict 30-day mourning period for the late King Rama IX, Workpoint incurred a loss of THB72m in 4Q16, which was lower than our estimate of THB120m. Advertising spenders seem to be confident on its strong and resilient TV ratings. Also, Workpoint has shown excellent cost controls. For 2016, the company’s average advertising rate stood at THB51,000/minute (2015: THB35,000/minute). As most costs are fixed, the improvement in revenue led to an increase in GPM to 43%. Earnings, hence, jumped 32% YoY. Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover (THBm) 2,434 2,634 3,898 4,448 5,007 Reported net profit (THBm) 150 199 537 732 928 Recurring net profit (THBm) 150 199 537 732 928 Recurring net profit growth (%) 0.0 32.1 170.1 36.4 26.8 Recurring EPS (THB) 0.36 0.48 1.29 1.75 2.22 Analysts DPS (THB) 0.34 0.27 0.77 1.23 1.56 Naruedom Mujjalinkool Recurring P/E (x) 140 106 39 29 23 +66 2862 9229 P/B (x) 7.61 7.07 6.82 6.36 5.87 P/CF (x) 34.9 24.4 20.4 18.4 15.1 [email protected] Dividend Yield (%) 0.7 0.5 1.5 2.4 3.1 EV/EBITDA (x) 24.4 23.1 16.6 14.9 13.2 Return on average equity (%) 6.8 6.9 17.7 22.9 26.9 Wanida Geisler Net debt to equity net cash net cash net cash net cash net cash +66 2862 9748 Our vs consensus EPS (adjusted) (%) 2.9 7.6 0.0 [email protected] Source: Company data, RHB See important disclosures at the end of this report 1 Powered by the EFA Platform Workpoint Entertainment Thailand Results Review 24 February 2017 Communications | Media Financial Exhibits Financial model updated on : 2017-02-23. Asia Financial summary Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Thailand Recurring EPS (THB) 0.36 0.48 1.29 1.75 2.22 Communications EPS (THB) 0.36 0.48 1.29 1.75 2.22 Workpoint Entertainment DPS (THB) 0.34 0.27 0.77 1.23 1.56 Bloomberg WORK TB BVPS (THB) 6.64 7.14 7.41 7.93 8.60 Buy Weighted avg adjusted shares (m) 417 417 417 417 417 Valuation basis Valuation metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F DCF. Recurring P/E (x) 140 106 39 29 23 P/E (x) 140 106 39 29 23 Key drivers P/B (x) 7.61 7.07 6.82 6.36 5.87 i. Sustainable growth in its TV rating; FCF Yield (%) (0.7) 1.8 4.1 4.6 5.8 ii. High potential to increase its advertising rates Dividend Yield (%) 0.7 0.5 1.5 2.4 3.1 EV/EBITDA (x) 24.4 23.1 16.6 14.9 13.2 Key risks EV/EBIT (x) 68.2 64.6 31.0 24.2 19.7 i. Sluggish advertising expenditure (adex); ii. High competition in the DTV business; iii. Massive programming costs and a price war Income statement (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover 2,434 2,634 3,898 4,448 5,007 Company Profile Gross profit 1,058 1,137 1,892 2,204 2,532 Workpoint Entertainment’s (Workpoint) business EBITDA 820 880 1,239 1,377 1,543 involves producing television shows, publishing, Depreciation and amortisation (526) (565) (575) (529) (513) animation, movies, organising concerts and show Operating profit 294 315 664 847 1,030 business events as well as event marketing. Net interest (132) (113) (94) (82) (37) Income from associates & JVs 14 2 15 16 17 Pre-tax profit 196 255 671 915 1,160 Taxation (45) (52) (134) (183) (232) Minority interests (1) (4) 0 0 0 Recurring net profit 150 199 537 732 928 Cash flow (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Change in working capital (84) (89) 26 (116) (44) Cash flow from operations 604 862 1,034 1,145 1,397 Capex (749) (482) (180) (180) (180) Cash flow from investing activities (1,270) (847) (806) (582) (577) Proceeds from issue of shares 1,073 0 0 0 0 Dividends paid (93) (63) (322) (512) (650) Cash flow from financing activities 686 (56) (559) (562) (750) Cash at beginning of period 856 876 835 505 505 Net change in cash 20 (41) (330) 1 71 Ending balance cash 876 835 505 505 576 Balance sheet (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total cash and equivalents 1,277 1,241 911 911 982 Tangible fixed assets 1,325 1,321 1,352 1,378 1,399 Intangible assets 2,298 2,199 1,973 1,798 1,644 Total investments 99 39 77 82 88 Total other assets 106 83 100 106 111 Total assets 5,589 5,422 5,099 5,141 5,196 Total long-term debt 340 540 490 390 290 Other liabilities 1,212 797 601 409 218 Total liabilities 2,802 2,436 2,002 1,824 1,601 Shareholders' equity 2,769 2,980 3,091 3,311 3,589 Minority interests 18 6 6 6 6 Total equity 2,787 2,987 3,097 3,317 3,595 Net debt (937) (701) (420) (521) (692) Total liabilities & equity 5,589 5,422 5,099 5,141 5,196 Key metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Revenue growth (%) 18.6 8.2 48.0 14.1 12.6 Recurrent EPS growth (%) 0.0 32.1 170.1 36.4 26.8 Gross margin (%) 43.5 43.2 48.5 49.6 50.6 Operating EBITDA margin (%) 33.7 33.4 31.8 31.0 30.8 Net profit margin (%) 6.2 7.5 13.8 16.5 18.5 Dividend payout ratio (%) 0.0 0.0 60.0 70.0 70.0 Capex/sales (%) 30.8 18.3 4.6 4.0 3.6 Interest cover (x) 2.22 2.80 7.05 10.39 28.21 Source: Company data, RHB See important disclosures at the end of this report 2 Workpoint Entertainment Thailand Results Review 24 February 2017 Communications | Media Figure 1: Workpoint’ results review FYE Dec (THBm) 4Q15 3Q16 4Q16 QoQ 2015 2016 YoY 4Q16 Comments (%) (%) TV business 599 707 458 (35) 2,125 2,392 13 No revenue for 30 days during the strict mourning period.