RS revealed its strategy for 2020 and beyond at a conference yesterday. It will leverage on its entertainment assets to develop the commerce business. This includes seeking new business partners like Amarin TV. It also plans to launch new products, such as toothpaste, in 3Q20. RS is sticking to its 55% revenue growth target for 2020 premised on this strategy, but we conservatively assumed revenue would grow at half that pace. We project FY20F earnings at Bt467m, 17% below consensus estimate. We maintain a HOLD rating with a lower TP of Bt13.4 (from Bt14.5) after trimming terminal growth from 2% to 1% as we are less bullish on the MPC unit.

The Entertainmerce strategy

We like the company’s attempts to turnaround the commerce platform but its strategy might take longer to deliver sustainable results. The key takeaways from the conference were as follows: (i) RS will adopt the Entertainmerce strategy. It will employ its entertainment assets, including TV channels, radio station, online platform and on-ground activities, to develop and grow its commerce business; (ii) For the TV platform, it is also seeking more business partners to sell commerce products. Its newest partner is Amarin TV; (iii) For the commerce business, it wants to grow revenue by introducing new products (30 new SKUs per month), add sales channels (mentioned above), and raise selling prices. It will launch a toothpaste product in 3Q20; (iv) RS is targeting Bt5.27b revenue for FY20, +46% yoy (MPC unit +55% to Bt3.2b, TV unit +39% to Bt1.25b).

Our FY20F earnings are below consensus estimate

RS has made impressive efforts to turn around the business by tying-up with third parties. However, our assumptions are more conservative than guidance. We assumed Bt3.9b revenue for FY20F, 25% below guidance, because the economy will remain sluggish next year. TV unit will suffer from weak ad spending due to the slowing economy. MPC unit revenue will grow but RS would have to sacrifice margins by offering more price promotions. Our conservative assumptions for FY20F led to our earnings being below consensus estimate.   

Maintain HOLD rating, cut DCF-based TP to Bt13.4 (from Bt14.5)    

We revised down our TP after trimming terminal growth from 2% to 1% and because we are less bullish on the MPC business. At current price, RS is not attractive, trading 27x FY20F PE while delivering only 8% earnings growth.