GMM Grammy - GRAMMY. TV satellite plan rejig. Report type: Company Update

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1 GMM Grammy - GRAMMY TV satellite plan rejig Bloomberg Reuters GRAMMY.TH GRAMMY9 Phillip Securities Research Pte Ltd 4 April 2012 Report type: Company Update Company Overview GRAMMY is a fully integrated entertainment company. Its businesses are divided into three major categories: (1) music business and related business, (2) media business and (3) movie business. GRAMMY has (i) appointed a new chief executive to take charge of its satellite TV business, (ii) rebranded the 1 Sky as GMM Z and (iii) raised its set top box sales target for this year to 2mn from 1.5mn after joining hands with several strategic partners to sell the boxes at modern trade stores, 7-Eleven convenience stores, JMART and Power Buy and through AIS dealers. Satellite pay TV services will begin in mid-jul GRAMMY expects 10-15% of GMM Z set top boxes sold to subscribe to pay TV services. Even though management has upped its set top box sales target for this year to 2mn, we leave our estimates for GRAMMY unchanged as the risk remains that costs of pay TV services are high and set top box sales may miss the target. We keep a TRADING SELL rating on GRAMMY with a CY12 target price of Bt17.60/share. GMM GRAMMY Rating 4.00 Trading Sell - Previous Rating 4.00 Trading Sell Target Price (Bt) Previous Target Price (Bt) Closing Price (Bt) Expected Capital Gains (%) -14.1% Expected Dividend Yield (%) 1.0% Expected Total Return (%) -13.2% Raw Beta (Past 2yrs w eekly data) 0.37 Market Cap. (USD mn) 353 Enterprise Value (USD mn) 386 Market Cap. (Bt mn) 10,870 Enterprise Value (Bt mn) 11,922 3M Average Daily T/O (mn) w eek range Closing Price in 52 w eek range % 50% 100% What is the news? Management has upped its GMM Z set top box sales target for this year to 2mn from 1.5mn. Pay TV services will begin in mid-jul How do we view this? The risk remains that set top box sales may miss the target and pay TV services will be in the red. Investment Actions? We keep a TRADING SELL rating on GRAMMY with a CY12 target price of Bt17.60/share based on a P/B of 2.50x Apr-11 May-11 Jun-11 Jul-11 Aug-11 Major Shareholders (%) 1. Mr. Paiboon Damrongchaitham 2. Chase Nominees Limited Mr. Thaveechat Jurangkool Sep-11 Oct-11 Volume, mn GRAMMY TB EQUITY SETI rebased Nov-11 Dec-11 Jan-12 Feb-12 Mar Key Financial Summary FYE 12/10 12/11 12/12F 12/13F Revenue (Btmn) 8,637 9,100 10,766 12,051 Net Profit (Btmn) EPS (Bt) Net Profit, adj. (Btmn) EPS, adj. (Bt) P/E (X),adj BVPS (Bt) P/B (X) DPS (Bt) Div. Yield (%) Source: Bloomberg, PSR est. *All multiples & yields based on current market price Valuation Method P/B'12 (2.5x) Analyst Phillip Research Team research@phillip.com.sg MICA (P) 012/01/2012 Ref. No.: TH2012_ of 7

2 GMM Grammy - GRAMMY Thailand Equities Research 4 April 2012 GMM Z set top box rollout on Apr 1 GRAMMY re-branded the 1 Sky, its satellite TV business as GMM Z with a more colorful and eye-catching logo on Apr 1, 2012 and appointed Thana Thienachariya as GMM Z s chief executive. Note that GMM Z provides satellite TV content, set top boxes and home shopping services. In addition to selling set top boxes through dealers nationwide, GRAMMY joined hands with several strategic partners to sell the boxes at modern trade retailers Big C and Tesco Lotus, 7-Eleven convenience stores, JMART and Power Buy and through AIS dealers, starting Apr 1, More than 100,000 1 Sky set top boxes were sold out before re-branding to GMM Z. Currently TV producers have also bought about 400,000 GMM Z set top boxes for their marketing campaigns. The 2012 UEFA European Football Championship, commonly referred to as Euro 2012 to be live broadcast in Jun-Jul 2012 would be a content that could help boost set top box sales as football fans need the boxes to watch live soccer matches through satellite TV. GRAMMY aims to sell 1mn set top boxes before Jun 2012 and it has upped its sales target to 2mn boxes at end-2012 from 1.5mn. GMM Z set top box users can also watch free three satellite TV channels, most of them being GRAMMY s own content: (1) GMM Hits, GRAMMY s music channel, (2) GMM Genius, documentary and knowledge channel, and (3) GMM Theater, movie channel. Pay TV services to begin in mid-jul 2012 Satellite pay TV services on both monthly subscription and ondemand basis are slated to begin in mid-jul There are three packages to choose from: (1) five sports channel package for a monthly subscription fee of Bt300, (2) four entertainment channel package for a monthly subscription fee of Bt200 and (3) both sports and entertainment packages for a monthly subscription fee of Bt450. GRAMMY expects 10-15% of GMM Z set top boxes sold to subscribe to pay TV services and average revenue per unit (ARPU) is estimated to range between Bt300- Bt350/month. Note that GRAMMY has already acquired the rights for the programming content to be broadcast on its satellite TV channels. Estimates unchanged despite management s sales target upgrade One of the most worrisome in satellite TV business is the number of monthly pay TV subscribers as GRAMMY has already spent about Bt1bn to acquire the three-year rights for the programming content with about Bt150mn per annum on transponder leases and there are also production and other expenses. By our estimate, we expect annual expenses of at least Bt500mn for satellite TV business. If subscriber numbers are not enough to cover costs, satellite TV business will be in the red. We also expect the satellite TV business to post a loss in the first year of operation. However, management is confident that set top box sales target of up to 2mn will be achievable. If sales could meet the target, profits from the sales of set top boxes may possibly offset losses from pay TV services. Uncertainty remains high. What remains to be seen is whether GRAMMY could sell 1mn set top boxes before Jun 2012 to meet its initial target. For this reason, we leave our CY12 profit outlook for GRAMMY unchanged at Bt265.29mn for the meantime. We also keep a TRADING SELL rating on GRAMMY with a CY12 target price of Bt17.60/ share based on a P/B of 2.50x. 2 of 7

3 GMM Grammy - GRAMMY Thailand Equities Research 4 April 2012 Ratings History Target Price Market Price Source: Bloomberg, PSR Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Sep-10 Jun-10 Mar-10 Dec Phillip Group Rating System Total Returns Recommendation Rating > +20% Buy 1 +5% to +20% Accumulate/Trading Buy 2-5% to +5% Neutral 3-5% to -20% Reduce/Trading Sell 4 >-20% Sell 5 Remarks We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation 3 of 7

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