Buy (17E TP Bt9.10)
RS Company Update
Buy (17E TP Bt9.10) Close Bt7.70
Media & Publishing November 18, 2016
Earnings upgrade/Earnings downgrade/Overview unchanged
Another two quarters of losses Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
0.071
0.133
KT ZMICO vs. consensus Share data
‐269%
‐2.3%
Reuters / Bloomberg
RS.BK/RS TB
Paid‐up Shares (m)
1,009.94
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
8.00/219.00
Foreign limit / actual (%)
49.00/3.76
52 week High / Low (Bt)
12.80/5.95
Avg. daily T/O (shares 000) NVDR (%)
4,725.00 4.56
Estimated free float (%)
46.59
Beta
1.11
URL
www.rs.co.th
CGR
Anti‐corruption
n.a.
Anapat Wanuschaiyapruk Analyst, no 57076 [email protected] 66 (0) 2-624‐6236
But bottom line is set to bottom out The management expects that the effect from the mourning period will continue into 1Q17, which means that we might see four consecutive quarters of losses (from 2Q16 to 1Q17). The bottom line in 4Q16 will be in the red but there is hope that a USO fee reversal may help bring it into the black. We are positive on RS’s current businesses, as they seem to be improving after the ceasing of a number of its satellite TV channels and radio stations. The main task for the company is growing its newly founded healthcare and beauty business. We believe RS’s business has entered the trough and will gradually recover from 1Q17 onwards, and we expect to see net profit of Bt128mn next year. We maintain Buy with the 17E TP of Bt9.10. To post loss of Bt73mn in 4Q16 but hope for a USO fee reversal After hearing management’s view, we reforecast a net loss in 4Q16 at Bt73mn. The top line will be impacted by 50% in TV, radio, and event business and the company will try to save costs by airing more rerun programs. However, if the Royal Decree regarding the license fee can be issued this year, RS will book a license fee reversal of around Bt97mn, which might help turn the bottom line positive. The outlook for 1Q17 is still unclear so the management has not given any guidance. TV will get stronger Ch8 has continued to build its audience base. Many programs are working well in terms of attracting more eyeballs, including boxing programs, morning news, and Thai and Korean drama series. Consequently, we believe it will gain more Adex share going forward and the overall TV margin will improve. Ch2 has seen stiff competition from digital TV, causing its revenue to decline over the last five quarters. However, the channel has low fixed costs by nature and should be able to withstand the losses. Sabaidee TV has been able to stand up to the competition, as its revenue has been stable so far. Continuing to pursue H&B growth RS will continue pursuing growth in H&B business. Next year it will 1) push products through more modern trade stores; 2) focus on boosting telesales to Bt80mn – Bt90mn per quarter; and 3) be conservative on marketing spending by putting other brands under Magique, which is already well known by its customers. We expect its sales to grow 28% and 24% in 17E and 18E while the gross margin should drop to 65% in 18E on a higher portion of sales from modern trade. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
2014 4,306 341 0.38 ‐13.6% 0.30 1.70 2014 20.42 4.33 4.54 3.9% 21.7% ‐21%
2015 3,729 122 0.12 ‐68.0% 0.10 1.78 2015 63.74 9.52 4.34 1.3% 7.2% ‐43%
2016E 3,047 (112) (0.12) ‐195.9% 0.00 1.08 2016E ‐66.45 18.25 7.14 0.0% ‐8.1% 44%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2017E 3,166 128 0.13 ‐214.1% 0.00 1.21 2017E 58.23 9.70 6.36 0.0% 11.5% 56%
2018E 3,384 335 0.35 161.9% 0.14 1.56 2018E 22.23 7.17 4.94 1.8% 25.0% 43%
Figure 1: RS’s 4Q16E earnings preview Profit and Loss (Btmn) Year‐end 31 Dec Revenue Gross profit EBITDA Interest expense Other income Income tax Other extraordinary Items Net profit (loss) Core profit (loss) Reported EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%)
4Q15 1,270 413 336 (18) 11 (32) (35) 123 158 0.12 32.5 26.5 12.4
3Q16 715 182 70 (23) 2 14 0 (61) (61) (0.06) 25.5 9.7 (8.5)
4Q16E 368 87 45 (23) 7 18 0 (73) (73) (0.07) 23.6 12.2 (19.8)
% YoY (71.0) (79.0) (86.7) 30.5 (37.2) (156.8) n.m. (159.4) (146.3) (159.1)
% QoQ (48.5) (52.3) (35.5) (1.4) 187.0 30.7 n.m. 19.6 19.6 14.2
2015 3,729 1,022 731 (81) 51 12 (35) 122 157 0.12 27.4 19.6 4.2
2016E 3,047 866 381 (82) 20 20 0 (112) (112) (0.12) 28.4 12.5 (3.7)
%YoY (18.3) (15.2) (47.8) 1.0 (61.1) 60.2 n.m. (192.1) (171.5) (195.9)
Source: RS, KT ZMICO Research
Expecting stronger TV business RS is currently operating a digital TV channel (Ch8) and two satellite TV channels (Sabaidee and Ch2). In 3Q16, Ch8 eventually showed slight profit. Its main content includes boxing programs, news, and drama series. Three boxing programs have received good feedback with ratings of 1.4 – 3.3. Its morning news program, Kui Kao Chong Pad, is now the third most watched morning news program after the two incumbents. Its average rating is around 0.8 with the peak during the program at 2.3, or around 1.5 million people. Its drama series have ratings of around 0.9 – 1.1, meaning that they are not making losses. A program that might not have an effect on TV ratings but has increased its online viewers is Korean series. We believe that these programs constitute a strong foundation for building an audience base for the channel. Ch2, on the other hand, has faced stiff competition from digital TV. Its revenue continued to decline from Bt83mn in 3Q15 to Bt22mn in 3Q16. However, the satellite TV channel has low fixed costs by nature. RS has used more rerun programs from Ch8 to keep the channel profitable. Sabaidee TV has been able to stand up to the competition, as its revenue has been stable so far. Figure 3: TV business forecast Figure 2: TV business (Bt'mn) 500
4% 1%
400 79 300
83
61 51
232
276
5%
‐1% 57 39
70 28
66 22
200 100
(Bt'mn)
3%
2%
247
308
315
‐8% 30 10 150
0
0%
2,000
‐5%
1,500
‐10% ‐15% ‐20%
3Q15
4Q15 Ch8
1Q16 Ch2
Source: RS, KT Zmico Research
2Q16
3Q16
Sabuydee
4Q16 GPM
32%
2,500
28% 24% 335
1,000 500 0
342
349
668
813
1,020
2016
25% 15%
16% 1,566
1,358
1,722
1,895
10% 5% 0%
0% ‐3% 2015
30% 20%
328 322
35%
‐5% 2017
Ch8
2018 Other
2019 GPM
Source: RS, KT Zmico Research
The TV business reported total revenue of Bt406mn in 2Q16 and Bt403mn in 3Q16 and gross profit margins of 2% and 3%, respectively. From now on, the decisive factor for the profitability of the TV business will be Ch8. We expect revenue in 4Q16 to drop to Bt190mn and a gross margin at around ‐8%. We still believe the TV business will see an improving gross margin next year as Ch8 will continue to gain more market share of Adex. Further good news is that Ch8, like other new digital TV channels, has come to the point where we will not see content costs jump significantly. As long as its content continues to work well with respect to attracting eyeballs, the overall performance will improve. We assume no growth in Ch8’s ad rate REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
2020
(Bt25,000 per minute) but the utilization rate should improve from 55% to 65%. Total ad revenue is expected to grow by 30% in 17E and the gross margin will improve to 16%. In 18E, we assume 10% ad rate growth but keep the utilization rate at 65%. Revenue will grow by 10% with the gross margin at 24%.
Still pursuing growth in H&B RS will continue to pursue growth in H&B business. Its strongest brand is now Magique, which already has been placed on shelves in many modern trade stores like Watsons, EVEANDBOY, and Tops Supermarket. In 4Q16, the company aims to push H&B products into more stores, e.g., Boots, Home Fresh Mart, and drug store chains. It is also considering selling H&B products in convenience stores with a cheaper package. In parallel to boosting sales via modern trade stores, the company will return to telesales, believing that they can achieve around Bt80mn to Bt90mn per quarter from telesales. The company expects that sales in 4Q16 will be close to 3Q15. We forecast that H&B revenue will grow around 28% to Bt306mn in 17E and 24% to Bt380mn in 18E. The gross margin should drop from 75% to 65% in 18E due to a lower margin from a higher portion of sales from modern trade. RS has revised its strategy regarding marketing spending. The management views that, to some extent, customers are well aware of Magique, so they will put other brands, i.e., Noble White, Gravitas, and Clear Expert, under it. This will allow RS avoid a repeat of the huge marketing expenses seen this year, which were at around Bt95mn. Figure 5: H&B business forecast Figure 4: H&B business (Bt'mn)
(Bt'mn) 32%
2,500
28% 24%
2,000
335
500 0
349
668
813
322 1,020
1,566
1,722
1,895
2016
10% 5% 0%
0% ‐3% 2015
25%
‐5% 2017
Ch8
2018 Other
Source: RS, KT Zmico Research
77%
100 74% 80
2019 GPM
2020
76%
77%
74%
60 40
78% 76%
73%
72%
15%
16% 1,358
30% 20%
328
1,500 1,000
342
35%
91 70
70%
84
69%
53
20
53
50
68% 66%
0
64% 3Q15
4Q15
1Q16 H&B
2Q16
3Q16 GPM
Source: RS, KT Zmico Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
4Q16
FINANCIAL TABLE PROFIT & LOSS (Btmn) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Extra Items Non‐controlling Net profit Reported EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btmn) Cash and equivalents Accounts receivable Inventories Investment PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Paid‐up shares Shareholder equity Total liab. & shareholder equity CASH FLOW (Btmn) Net income Non‐cash adjustment Depreciation & amortization Change in working capital Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2013 3,461 (2,109) 1,352 (873) 758 (278) 479 (17) 14 476 (84) 0 2 394 0.44 394 0.44 0.35
2014 4,306 (2,941) 1,365 (835) 1,608 (1,078) 530 (78) 23 475 (107) 0 (27) 341 0.38 341 0.38 0.30
2013 572 1,068 39 5 1,055 210 2,950 292 13 1,364 1,026 1,585 2,950
2014 382 1,101 107 5 2,698 289 4,582 8 5 2,838 1,026 1,743 4,582
2013 392 7 278 294 971 (473) 0 (473) (125) 148 (272) 8 (240) 259 499 0.52
2018E 265 795 129 5 2,466 511 4,171 906 9 2,655 1,014 1,516 4,171
2017E 128 0 525 (424) 229 (430) 0 (430) 51 0 0 0 51 (150) (201) (0.21)
2016E ‐18.3% ‐47.8% ‐174.5% 28.4% 12.5% ‐2.3% ‐3.7% ‐3.7% 15.0%
2018E 3,384 (2,136) 1,249 (814) 971 (536) 435 (37) 20 419 (84) 0 (0) 335 0.35 335 0.35 0.14
2017E 101 743 129 5 2,563 488 4,029 756 8 2,848 1,014 1,181 4,030
2016E (112) 0 451 (384) (44) (600) 0 (600) 700 0 (97) (465) 138 (506) (644) (0.67)
2015 ‐13.4% ‐54.5% ‐58.7% 27.4% 19.6% 4.9% 3.3% 4.2% ‐8.0%
2017E 3,166 (2,138) 1,028 (836) 717 (525) 192 (52) 20 160 (32) 0 (0) 128 0.13 128 0.13 0.00
2016E 251 716 131 5 2,658 475 4,236 706 7 3,183 1,014 1,053 4,236
2015 132 42 547 470 1,191 (666) 9 (657) (10) 0 (181) 33 (158) 376 534 0.53
2014 24.4% 112.3% ‐13.6% 31.7% 37.3% 12.3% 7.9% 7.9% 22.6%
2016E 3,047 (2,181) 866 (936) 381 (451) (70) (82) 20 (132) 20 0 (0) (112) (0.12) (112) (0.12) 0.00
2015 757 876 163 5 2,510 533 4,844 6 7 3,117 1,014 1,727 4,844
2014 368 0 1,078 (93) 1,354 (1,033) 0 (1,032) (293) 100 (311) (8) (512) (191) 321 0.33
2013 23.1% 70.1% 34.0% 39.1% 21.9% 13.9% 11.4% 11.4% 17.6%
2015 3,729 (2,707) 1,022 (837) 731 (547) 184 (81) 51 155 12 (35) (10) 122 0.12 157 0.16 0.10
2018E 335 0 536 (419) 452 (439) 0 (439) 151 0 0 0 151 164 13 0.01
2017E 3.9% 88.1% ‐214.1% 32.5% 22.7% 6.1% 4.0% 4.0% 20.0%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
2018E 6.9% 35.4% 161.9% 36.9% 28.7% 12.9% 9.9% 9.9% 20.0%
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, TPOLY, M‐CHAI, TFD, SUTHA, CI, NUSA.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
KT ZMICO Securities Company Limited Head Office
WWW.KTZMICO.COM
8th, 15th‐17th,19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok, Thailand 10500 Telephone: (66‐2) 695‐5000 Fax: (66‐2) 695‐5173 KT ZMICO Connect 662 695 5555
Central World Branch
Amarin Branch
22nd Floor, Amarin Building, 496‐502 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 018‐6200 Fax: (66‐2) 018‐6298, (66‐2) 018‐6299
8th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 626‐6000 Fax: (66‐2) 626‐6111
Phaholyothin Branch
Sindhorn Branch
Viphavadee Branch
2nd Floor, Sindhorn Tower 1, 130‐132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 627‐3550 Fax: (66‐2) 627‐3582, 627‐3600
G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee‐Rangsit Road, Ladyao, Jatujak, Bangkok 10900 Telephone: (66‐2) 013‐8600 Fax: (66‐2) 618‐8569
BangKhae Branch
Chiang Mai Branch
Pak Chong Branch
999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan, Bangkok 10330 Telephone: (66‐2) 264‐5888 Fax: (66‐2) 264 5899
1291/1, Shinnawatra Tower II, 3rd Floor, Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66‐2) 686‐1500 Fax: (66‐2) 686‐1666
Ploenchit Branch
518 The Mall Group Building Bangkhae Branch, 6th Floor, Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Telephone: (66‐2) 454‐9979 Fax: (66‐2) 454‐9970
422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai 50100 Telephone: (053) 270‐072 Fax: (053) 272‐618
173 175, Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Telephone: (044) 279‐511 Fax: (044) 279‐574
Korat Branch
Khon Kaen Branch
Chonburi Branch
624/9 Changphuek Road, T.Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171
5th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000 Telephone: (043) 389‐171‐193 Fax: (043) 389‐209
4th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287‐635 Fax: (038) 287‐637
Pattaya Branch
Chachoengsao Branch
Hat Yai Branch
Easy Point 2, 392/65 Moo.9, T.Nong Prue, A. Bang Lamung, Chonburi 20260 Telephone: (038) 420‐965 Fax: (038) 420‐968
108/34‐36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao 24000 Telephone: (038) 813‐088 Fax: (038) 813‐099
200/301, 200/303 JULDIS HATYAI PLAZA Floor 3 , Niphat‐Uthit 3 Rd, Hatyai Songkhla 90110 Telephone: (074) 355530‐3 Fax: (074) 355534
Phuket Branch
22/61‐63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket 83000 Telephone: (076) 222‐811, (076) 222‐683 Fax: (076) 222‐861
Phitsanulok Branch
227/171 Borom Trilokkanat Road, Muang, Phitsanulok 65000 Telephone: 055‐219‐255 to 8 Fax: 055‐219‐259
Nakhon Pathom
Cyber Branch Ayutthaya
Cyber Branch @ North Nana
Cyber Branch Chiangrai
KrungThai Bank, Rojana Branch 253 Moo 5, Rojana Road, Phai Ling, Phra Nakhon Si Ayutthaya, Phra Nakhonsi Ayutthaya, 13000 Telephone: 035‐242‐477 Fax: 035‐242‐476
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd., Klong Toey Nua Subdistrict , Wattana District , Bangkok 10110 Telephone: 083‐490‐2871
River Hotel (Building 3rd),1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
KrungThai Bank, Hayaek Phokhun Mengrai Branch 116/19 Moo 19, Highway 110 Road, Rop Wiang, Mueang Chiang Rai, Chiang Rai, 57000 Telephone: 053‐715‐067 Fax: 053‐715‐068
Buy (17E TP Bt9.10) Close Bt7.70
Media & Publishing November 18, 2016
Earnings upgrade/Earnings downgrade/Overview unchanged
Another two quarters of losses Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
0.071
0.133
KT ZMICO vs. consensus Share data
‐269%
‐2.3%
Reuters / Bloomberg
RS.BK/RS TB
Paid‐up Shares (m)
1,009.94
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
8.00/219.00
Foreign limit / actual (%)
49.00/3.76
52 week High / Low (Bt)
12.80/5.95
Avg. daily T/O (shares 000) NVDR (%)
4,725.00 4.56
Estimated free float (%)
46.59
Beta
1.11
URL
www.rs.co.th
CGR
Anti‐corruption
n.a.
Anapat Wanuschaiyapruk Analyst, no 57076 [email protected] 66 (0) 2-624‐6236
But bottom line is set to bottom out The management expects that the effect from the mourning period will continue into 1Q17, which means that we might see four consecutive quarters of losses (from 2Q16 to 1Q17). The bottom line in 4Q16 will be in the red but there is hope that a USO fee reversal may help bring it into the black. We are positive on RS’s current businesses, as they seem to be improving after the ceasing of a number of its satellite TV channels and radio stations. The main task for the company is growing its newly founded healthcare and beauty business. We believe RS’s business has entered the trough and will gradually recover from 1Q17 onwards, and we expect to see net profit of Bt128mn next year. We maintain Buy with the 17E TP of Bt9.10. To post loss of Bt73mn in 4Q16 but hope for a USO fee reversal After hearing management’s view, we reforecast a net loss in 4Q16 at Bt73mn. The top line will be impacted by 50% in TV, radio, and event business and the company will try to save costs by airing more rerun programs. However, if the Royal Decree regarding the license fee can be issued this year, RS will book a license fee reversal of around Bt97mn, which might help turn the bottom line positive. The outlook for 1Q17 is still unclear so the management has not given any guidance. TV will get stronger Ch8 has continued to build its audience base. Many programs are working well in terms of attracting more eyeballs, including boxing programs, morning news, and Thai and Korean drama series. Consequently, we believe it will gain more Adex share going forward and the overall TV margin will improve. Ch2 has seen stiff competition from digital TV, causing its revenue to decline over the last five quarters. However, the channel has low fixed costs by nature and should be able to withstand the losses. Sabaidee TV has been able to stand up to the competition, as its revenue has been stable so far. Continuing to pursue H&B growth RS will continue pursuing growth in H&B business. Next year it will 1) push products through more modern trade stores; 2) focus on boosting telesales to Bt80mn – Bt90mn per quarter; and 3) be conservative on marketing spending by putting other brands under Magique, which is already well known by its customers. We expect its sales to grow 28% and 24% in 17E and 18E while the gross margin should drop to 65% in 18E on a higher portion of sales from modern trade. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
2014 4,306 341 0.38 ‐13.6% 0.30 1.70 2014 20.42 4.33 4.54 3.9% 21.7% ‐21%
2015 3,729 122 0.12 ‐68.0% 0.10 1.78 2015 63.74 9.52 4.34 1.3% 7.2% ‐43%
2016E 3,047 (112) (0.12) ‐195.9% 0.00 1.08 2016E ‐66.45 18.25 7.14 0.0% ‐8.1% 44%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2017E 3,166 128 0.13 ‐214.1% 0.00 1.21 2017E 58.23 9.70 6.36 0.0% 11.5% 56%
2018E 3,384 335 0.35 161.9% 0.14 1.56 2018E 22.23 7.17 4.94 1.8% 25.0% 43%
Figure 1: RS’s 4Q16E earnings preview Profit and Loss (Btmn) Year‐end 31 Dec Revenue Gross profit EBITDA Interest expense Other income Income tax Other extraordinary Items Net profit (loss) Core profit (loss) Reported EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%)
4Q15 1,270 413 336 (18) 11 (32) (35) 123 158 0.12 32.5 26.5 12.4
3Q16 715 182 70 (23) 2 14 0 (61) (61) (0.06) 25.5 9.7 (8.5)
4Q16E 368 87 45 (23) 7 18 0 (73) (73) (0.07) 23.6 12.2 (19.8)
% YoY (71.0) (79.0) (86.7) 30.5 (37.2) (156.8) n.m. (159.4) (146.3) (159.1)
% QoQ (48.5) (52.3) (35.5) (1.4) 187.0 30.7 n.m. 19.6 19.6 14.2
2015 3,729 1,022 731 (81) 51 12 (35) 122 157 0.12 27.4 19.6 4.2
2016E 3,047 866 381 (82) 20 20 0 (112) (112) (0.12) 28.4 12.5 (3.7)
%YoY (18.3) (15.2) (47.8) 1.0 (61.1) 60.2 n.m. (192.1) (171.5) (195.9)
Source: RS, KT ZMICO Research
Expecting stronger TV business RS is currently operating a digital TV channel (Ch8) and two satellite TV channels (Sabaidee and Ch2). In 3Q16, Ch8 eventually showed slight profit. Its main content includes boxing programs, news, and drama series. Three boxing programs have received good feedback with ratings of 1.4 – 3.3. Its morning news program, Kui Kao Chong Pad, is now the third most watched morning news program after the two incumbents. Its average rating is around 0.8 with the peak during the program at 2.3, or around 1.5 million people. Its drama series have ratings of around 0.9 – 1.1, meaning that they are not making losses. A program that might not have an effect on TV ratings but has increased its online viewers is Korean series. We believe that these programs constitute a strong foundation for building an audience base for the channel. Ch2, on the other hand, has faced stiff competition from digital TV. Its revenue continued to decline from Bt83mn in 3Q15 to Bt22mn in 3Q16. However, the satellite TV channel has low fixed costs by nature. RS has used more rerun programs from Ch8 to keep the channel profitable. Sabaidee TV has been able to stand up to the competition, as its revenue has been stable so far. Figure 3: TV business forecast Figure 2: TV business (Bt'mn) 500
4% 1%
400 79 300
83
61 51
232
276
5%
‐1% 57 39
70 28
66 22
200 100
(Bt'mn)
3%
2%
247
308
315
‐8% 30 10 150
0
0%
2,000
‐5%
1,500
‐10% ‐15% ‐20%
3Q15
4Q15 Ch8
1Q16 Ch2
Source: RS, KT Zmico Research
2Q16
3Q16
Sabuydee
4Q16 GPM
32%
2,500
28% 24% 335
1,000 500 0
342
349
668
813
1,020
2016
25% 15%
16% 1,566
1,358
1,722
1,895
10% 5% 0%
0% ‐3% 2015
30% 20%
328 322
35%
‐5% 2017
Ch8
2018 Other
2019 GPM
Source: RS, KT Zmico Research
The TV business reported total revenue of Bt406mn in 2Q16 and Bt403mn in 3Q16 and gross profit margins of 2% and 3%, respectively. From now on, the decisive factor for the profitability of the TV business will be Ch8. We expect revenue in 4Q16 to drop to Bt190mn and a gross margin at around ‐8%. We still believe the TV business will see an improving gross margin next year as Ch8 will continue to gain more market share of Adex. Further good news is that Ch8, like other new digital TV channels, has come to the point where we will not see content costs jump significantly. As long as its content continues to work well with respect to attracting eyeballs, the overall performance will improve. We assume no growth in Ch8’s ad rate REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
2020
(Bt25,000 per minute) but the utilization rate should improve from 55% to 65%. Total ad revenue is expected to grow by 30% in 17E and the gross margin will improve to 16%. In 18E, we assume 10% ad rate growth but keep the utilization rate at 65%. Revenue will grow by 10% with the gross margin at 24%.
Still pursuing growth in H&B RS will continue to pursue growth in H&B business. Its strongest brand is now Magique, which already has been placed on shelves in many modern trade stores like Watsons, EVEANDBOY, and Tops Supermarket. In 4Q16, the company aims to push H&B products into more stores, e.g., Boots, Home Fresh Mart, and drug store chains. It is also considering selling H&B products in convenience stores with a cheaper package. In parallel to boosting sales via modern trade stores, the company will return to telesales, believing that they can achieve around Bt80mn to Bt90mn per quarter from telesales. The company expects that sales in 4Q16 will be close to 3Q15. We forecast that H&B revenue will grow around 28% to Bt306mn in 17E and 24% to Bt380mn in 18E. The gross margin should drop from 75% to 65% in 18E due to a lower margin from a higher portion of sales from modern trade. RS has revised its strategy regarding marketing spending. The management views that, to some extent, customers are well aware of Magique, so they will put other brands, i.e., Noble White, Gravitas, and Clear Expert, under it. This will allow RS avoid a repeat of the huge marketing expenses seen this year, which were at around Bt95mn. Figure 5: H&B business forecast Figure 4: H&B business (Bt'mn)
(Bt'mn) 32%
2,500
28% 24%
2,000
335
500 0
349
668
813
322 1,020
1,566
1,722
1,895
2016
10% 5% 0%
0% ‐3% 2015
25%
‐5% 2017
Ch8
2018 Other
Source: RS, KT Zmico Research
77%
100 74% 80
2019 GPM
2020
76%
77%
74%
60 40
78% 76%
73%
72%
15%
16% 1,358
30% 20%
328
1,500 1,000
342
35%
91 70
70%
84
69%
53
20
53
50
68% 66%
0
64% 3Q15
4Q15
1Q16 H&B
2Q16
3Q16 GPM
Source: RS, KT Zmico Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
4Q16
FINANCIAL TABLE PROFIT & LOSS (Btmn) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Extra Items Non‐controlling Net profit Reported EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btmn) Cash and equivalents Accounts receivable Inventories Investment PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Paid‐up shares Shareholder equity Total liab. & shareholder equity CASH FLOW (Btmn) Net income Non‐cash adjustment Depreciation & amortization Change in working capital Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2013 3,461 (2,109) 1,352 (873) 758 (278) 479 (17) 14 476 (84) 0 2 394 0.44 394 0.44 0.35
2014 4,306 (2,941) 1,365 (835) 1,608 (1,078) 530 (78) 23 475 (107) 0 (27) 341 0.38 341 0.38 0.30
2013 572 1,068 39 5 1,055 210 2,950 292 13 1,364 1,026 1,585 2,950
2014 382 1,101 107 5 2,698 289 4,582 8 5 2,838 1,026 1,743 4,582
2013 392 7 278 294 971 (473) 0 (473) (125) 148 (272) 8 (240) 259 499 0.52
2018E 265 795 129 5 2,466 511 4,171 906 9 2,655 1,014 1,516 4,171
2017E 128 0 525 (424) 229 (430) 0 (430) 51 0 0 0 51 (150) (201) (0.21)
2016E ‐18.3% ‐47.8% ‐174.5% 28.4% 12.5% ‐2.3% ‐3.7% ‐3.7% 15.0%
2018E 3,384 (2,136) 1,249 (814) 971 (536) 435 (37) 20 419 (84) 0 (0) 335 0.35 335 0.35 0.14
2017E 101 743 129 5 2,563 488 4,029 756 8 2,848 1,014 1,181 4,030
2016E (112) 0 451 (384) (44) (600) 0 (600) 700 0 (97) (465) 138 (506) (644) (0.67)
2015 ‐13.4% ‐54.5% ‐58.7% 27.4% 19.6% 4.9% 3.3% 4.2% ‐8.0%
2017E 3,166 (2,138) 1,028 (836) 717 (525) 192 (52) 20 160 (32) 0 (0) 128 0.13 128 0.13 0.00
2016E 251 716 131 5 2,658 475 4,236 706 7 3,183 1,014 1,053 4,236
2015 132 42 547 470 1,191 (666) 9 (657) (10) 0 (181) 33 (158) 376 534 0.53
2014 24.4% 112.3% ‐13.6% 31.7% 37.3% 12.3% 7.9% 7.9% 22.6%
2016E 3,047 (2,181) 866 (936) 381 (451) (70) (82) 20 (132) 20 0 (0) (112) (0.12) (112) (0.12) 0.00
2015 757 876 163 5 2,510 533 4,844 6 7 3,117 1,014 1,727 4,844
2014 368 0 1,078 (93) 1,354 (1,033) 0 (1,032) (293) 100 (311) (8) (512) (191) 321 0.33
2013 23.1% 70.1% 34.0% 39.1% 21.9% 13.9% 11.4% 11.4% 17.6%
2015 3,729 (2,707) 1,022 (837) 731 (547) 184 (81) 51 155 12 (35) (10) 122 0.12 157 0.16 0.10
2018E 335 0 536 (419) 452 (439) 0 (439) 151 0 0 0 151 164 13 0.01
2017E 3.9% 88.1% ‐214.1% 32.5% 22.7% 6.1% 4.0% 4.0% 20.0%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
2018E 6.9% 35.4% 161.9% 36.9% 28.7% 12.9% 9.9% 9.9% 20.0%
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, TPOLY, M‐CHAI, TFD, SUTHA, CI, NUSA.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
KT ZMICO Securities Company Limited Head Office
WWW.KTZMICO.COM
8th, 15th‐17th,19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok, Thailand 10500 Telephone: (66‐2) 695‐5000 Fax: (66‐2) 695‐5173 KT ZMICO Connect 662 695 5555
Central World Branch
Amarin Branch
22nd Floor, Amarin Building, 496‐502 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 018‐6200 Fax: (66‐2) 018‐6298, (66‐2) 018‐6299
8th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 626‐6000 Fax: (66‐2) 626‐6111
Phaholyothin Branch
Sindhorn Branch
Viphavadee Branch
2nd Floor, Sindhorn Tower 1, 130‐132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 627‐3550 Fax: (66‐2) 627‐3582, 627‐3600
G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee‐Rangsit Road, Ladyao, Jatujak, Bangkok 10900 Telephone: (66‐2) 013‐8600 Fax: (66‐2) 618‐8569
BangKhae Branch
Chiang Mai Branch
Pak Chong Branch
999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan, Bangkok 10330 Telephone: (66‐2) 264‐5888 Fax: (66‐2) 264 5899
1291/1, Shinnawatra Tower II, 3rd Floor, Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66‐2) 686‐1500 Fax: (66‐2) 686‐1666
Ploenchit Branch
518 The Mall Group Building Bangkhae Branch, 6th Floor, Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Telephone: (66‐2) 454‐9979 Fax: (66‐2) 454‐9970
422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai 50100 Telephone: (053) 270‐072 Fax: (053) 272‐618
173 175, Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Telephone: (044) 279‐511 Fax: (044) 279‐574
Korat Branch
Khon Kaen Branch
Chonburi Branch
624/9 Changphuek Road, T.Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171
5th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000 Telephone: (043) 389‐171‐193 Fax: (043) 389‐209
4th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287‐635 Fax: (038) 287‐637
Pattaya Branch
Chachoengsao Branch
Hat Yai Branch
Easy Point 2, 392/65 Moo.9, T.Nong Prue, A. Bang Lamung, Chonburi 20260 Telephone: (038) 420‐965 Fax: (038) 420‐968
108/34‐36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao 24000 Telephone: (038) 813‐088 Fax: (038) 813‐099
200/301, 200/303 JULDIS HATYAI PLAZA Floor 3 , Niphat‐Uthit 3 Rd, Hatyai Songkhla 90110 Telephone: (074) 355530‐3 Fax: (074) 355534
Phuket Branch
22/61‐63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket 83000 Telephone: (076) 222‐811, (076) 222‐683 Fax: (076) 222‐861
Phitsanulok Branch
227/171 Borom Trilokkanat Road, Muang, Phitsanulok 65000 Telephone: 055‐219‐255 to 8 Fax: 055‐219‐259
Nakhon Pathom
Cyber Branch Ayutthaya
Cyber Branch @ North Nana
Cyber Branch Chiangrai
KrungThai Bank, Rojana Branch 253 Moo 5, Rojana Road, Phai Ling, Phra Nakhon Si Ayutthaya, Phra Nakhonsi Ayutthaya, 13000 Telephone: 035‐242‐477 Fax: 035‐242‐476
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd., Klong Toey Nua Subdistrict , Wattana District , Bangkok 10110 Telephone: 083‐490‐2871
River Hotel (Building 3rd),1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
KrungThai Bank, Hayaek Phokhun Mengrai Branch 116/19 Moo 19, Highway 110 Road, Rop Wiang, Mueang Chiang Rai, Chiang Rai, 57000 Telephone: 053‐715‐067 Fax: 053‐715‐068
