Disposal of remaining 47% stake in Liann Yee (Taiwan TV channel operation)TVB announced on Jan. 4 that it will dispose of 47% stake in Liann Yee (LY) forTWD4.3bn (or HKD1.0bn) to the same group of purchasers (namely, Li Mao,De En and Lien Xin), which acquired the 53% stake disposed of in May 2015.
Likely no special dividend on the disposal: unlike the previous disposal(which resulted in a HKD2.3 special dividend in FY14), TVB said it will nottake the transaction into account when considering FY15 dividend, as itintends to maintain a steady level of dividend payments for FY15.
Moderate disposal gain: based on company disclosures (book value as ofNov 2015), we expect a disposal gain of HKD139mn (vs. the previousdisposal gain of HKD1.3bn). The final gain depends on LY’s book valueupon completion. To recap, LY has been revalued due to the previousdisposal, with value appreciations recognized in 1HFY15.
Upon completion, TVB will no longer hold any interest in LY, except forproperties that TVB leased for LY. It will continue to have businesstransactions (buying and selling of TV programs) with LY but the amounthistorically has been insignificant.
Rationale for the sale: TVB plans to use the proceeds as working capitaland for future investments. TVB believes the disposal will allow it to focusits resources on operations mainly in HK and China.
Deutsche Bank view
Limited financial impact – refocus is the key: On an annualized basis, thedisposal will reduce or core NP by 9/8% or HK$93m/HK$97m for FY16/17.Should the disposal gain be included in FY16, headline NP will increase by5%. Moving forward, TVB’s focus will be in HK/China, although in the pastTVB’s influence in all Chinese communities has been one of the merits.
Deal valuation: the consideration implies 12.5x/12.1x adjusted PER for2013 /2014, in-line with the multiples of the previous disposal.
We maintain Hold as we believe operating environment in HK will betough with weak retail sales, leading to weak adex in 2016. Additionalinvestments in the OTT business and Olympic will add to costs this year.However, given its strong balance sheet, operating cashflow as well theseone-off proceeds, we assume TVB will pay an absolute ordinary dividendfor 2015/2016 as in 2014. Share price is thus supported by a ~ 8%dividend yield.