Look for media revenues to grow 22% y-o-y driven by Viu’sregional expansion and ViuTV
Further discussion of media rollout plans and financialforecasts are potential catalysts; expect stable solution trends
Reiterate Buy with unchanged forecasts and target price atHKD6.30
PCCW will announce 1H16 results on Thursday 11 August 2016.
Expect 1H16 media revenue growth at five-year high. We expect the media segmentto post 22% y-o-y growth in 1H16, primarily driven by the Viu unit (OTT video, mainly inAsia, India and the Middle East to date). We think 2016e should be a growth year forViu as it accelerates its regional expansion plan after being acquired by PCCW lastyear. We forecast Viu’s revenue to more than double in 1H16 (vs up 17% y-o-y in1H15). Further, we expect the first revenue contribution from ViuTV (free-to-air inHong Kong only) after its debut in April this year. Finally, we expect stable momentumat Now TV (pay-TV) to continue (i.e. mid-single digit). On the other hand, we expectsteady performances at other PCCW businesses.
Attractive near-term growth with defensive qualities. As we highlighted in our lastreport (Upgrade PCCW to Buy: Spotlight on media growth, 6 July 2016), PCCW’snear-term growth is underpinned by the strong prospects of its media business. InViu, this is driven by its robust growth momentum on the back of a strong platform(i.e. a diverse content base and global appeal for Asian consumers), which can sharecosts and resources with other media units. This means a relative low-cost operatingmodel as PCCW leverages its exclusive deals with top Korean studios acrossmultiple platforms. In ViuTV, we see a clear opportunity in a duopoly market, as ATVfades and i-Cable takes a slow-go approach. We believe ViuTV is well positioned tobe a disrupter to the incumbent TVB. Finally, in Now TV, we expect it to defendsubscribers, revenue and earnings, despite more competition from OTT players, suchas TVB and LeEco, but neither can match the breadth of Now TV’s content.
Maintain Buy with no change in forecasts and target price. Year-to-date, PCCWstock is up 26% (vs HSI +2%). Results and more guidance on the outlook anddisclosure of the three media units are potential near-term positive catalysts. PCCWshare price is increasingly trading closely with its sales momentum and we expectthis to continue, as the stock becomes less of a proxy play on HKT (6823 HK, Hold,HKD12.0). We believe PCCW provides strong dividend support as well as an optionon the growth potential of the media business. PCCW currently trades at c16x 2016eEPS (with 18% ROE) and 6x 2016e EV/EBITDA.