• Share price should continue to be pressured by consensus earnings downgrade, weak 4Q18F results, and high competition
• Revised down FY18-20F profit after imputing lower ad rates and utilization
• NEUTRAL, cut TP to Bt21/sh (from Bt30/sh); ADEX remains weak and it is challenging to boost TV shopping revenue

Expect to book loss in 4Q18F on low utilization and high content cost

Following the analyst briefing last week, we expect WORK’s share price to continue to be pressured by (i) consensus earnings downgrade, (ii) anticipated weak 4Q18F results with no sign of ADEX recovery, and (iii) improving rating for ONE. 4Q18F ad rate should be flat qoq at Bt70k      (-14% yoy) without new big format content. Utilization should drop 10ppt qoq to 48% following weaker rating of 1.1 (vs 1.2 in 3Q18). Asian Games content cost would reduce GPM to 26% vs. average 40% level. Hence, WORK should book Bt43m net loss for 4Q18F vs Bt142m profit in the previous quarter and Bt22m loss in 4Q17. For FY19F, TV revenue should drop 7% yoy (vs flat yoy guidance). Ad rate should drop to Bt70k (from Bt75k) with flat yoy utilization at 53%. WORK guided production cost to drop by Bt150m due to lower sports license fee, and they would no longer book c.Bt40m ESOP expense from FY19.   

Targeting higher revenue contribution from TV shopping

We trimmed FY18-20F profit by 19-30% after imputing lower ad rates and utilization, which were partly offset by lower production cost and higher TV shopping revenues premised on its new business plan. WORK will refresh its TV programming by focusing on viewers with higher purchasing power to attract media agencies. Pritsana Fah Lap will be replaced by new quiz show Earth Quake to boost weekdays rating starting February. They will add big format content led by The Rapper and 10Fight10 to Monday programs and target c.Bt200k ad rate with above-2.5 rating. WORK expects Bt600m revenue from TV shopping unit (vs Bt140m in FY18F) driven by inbound H&L sales via Hello shops launched in mid-December which currently generate Bt900k sales per day with 50% GPM. They also project stronger revenue from H&B products (e.g. Me Vio and Let Me In Beauty) via direct sales and other channels.

Wait for ADEX to recover and stronger growth at TV shopping unit

We cut DCF-based TP to Bt21/sh. The stock is currently trading at 25x FY19F PE vs peers’ average of 35x. Several negative factors have been priced-in. However, we would wait for signs of rating/ADEX recovery and stronger growth of TV shopping revenue before increasing exposure.