HKD654m impairment loss from associate; to roll out a new model
TVB announced on 4 August that it had written off its economic interest inassociate TVB Network Vision (TVBNV), which operates pay TV business inHong Kong. TVB has recognized an impairment loss of HKD654m in 1H15from the transaction. TVB holds 90% economic interest in TVBNV (with therest 10% being loan and trade receivables), while commanding a 15% votinginterest in the associate (along with the first refusal right to acquire additionalinterests in TVBNV).
TVB attributed the write-off to potential drastic decline in cashflow at TVBNV,due to content piracy. TVBNV operated 12 pay channels, covering drama,sports, entertainment, news, etc., with content produced in Korea, Japan andChina.
TVB recorded losses of HKD73/53m in 2014/2013 from its associates,equivalent to 4%/2% of its pre-tax income.
The company will roll out a second platform in early 2016, through a lowercostOTT format to deliver content.
Offsetting the loss using Liann Yee disposal gain, limited cash flow implication
In the announcement, TVB reiterated its HKD1,396m gain from disposing LiannYee in 1Q15.
Deutsche Bank view
We do not expect the associate impairment to affect TVB’s cash flow profileand its dividend outlook.
TVB has been making provision for its HK pay TV operation over the pastyears, given its failure to increase the number of subscribers. We believe thechange in viewer behavior with preference towards TV boxes or TV Apps andother types of entertainment has hurt all traditional media.
We believe the roll-out of pay TV service using OTT format is cost saving andmore convenient. If the pricing is attractive, it might be able to attract moresubscribers. However, the availability of free content (due to piracy) remains aheadache for TVB and other channel operators. Maintaining Hold with anattractive yield.