Edging back target price to HK$30.02; Hold
HK's 2016 adex outlook remains cloudy and gloomy, according to Nielsen, butadvertisers believe TV is still important for their branding campaigns (for themass market). We lower our profit forecasts by 10%/12.5% for 16/17, but edgeback our target price only marginally to HK$30.02, as we roll our first DCFforecast year forward to 2017 (from 2016). We believe the outlook weakness isreflected in the share price and, given the near-9% yield, maintain Hold.
2016 – tough market ahead
We believe the HK adex outlook remains weak and uncertain. Among offlinemedia players, we believe TV is least affected by online challenges or mediafragmentation as TV is still very important when it comes to brandingcampaigns, according to Raymond Ho, chairman of HK2A. That said, withmore new free-TV and pay-TV (LeTV and Netflix) battling for audience share,the initial hit for TVB is on higher operating costs with more content andtechnology investments (vs. cost saving in a tough market, as in the past).
We lower our forecasts by 10%/12.5% for 16/17; disposal supports dividendThis is on the back of a weaker performance for retailers in 4Q15 and a gloomyad outlook, as shown in a survey on advertising projections for 2016 by HK2Aand Nielsen. Given the disposal of Taiwan TVBS, we expect the company topay an absolute dividend of HK$2.6 per share in each of 2015/16/17, a near-9%yield at the current price – this assumes that the 2016/17 operating cashflowand operating environment do not deteriorate more than we expect.
Target price of HK$30.02; risks
We base our DCF-derived target price on a COE of 7.5%, with a 2.8% RFR,4.9% ERP, 1.1 beta, and 0% TGR. Downside risks: potential new entrants inFTA TV in Hong Kong; China initiative’s failure to monetize. Upside risk:stronger-than expected growth in the HK operation.