TP at HK$27.96; revision in line with earnings revision
2015 NP was 14%/9% lower than DB/market forecasts due to HKbroadcasting’s higher-than-expected opex and the lower contributions fromoverseas operations. 2016 remains tough, but a better 2017 is expected. Thekey focus for 2016 is to launch myTV SUPER on 18 April 2016, an OTT serviceto win viewership and ratings with a target of achieving 1.4m screens byNovember 2019. Given the small capex, net cash position and free cash flowfrom operations, it plans to maintain its absolute dividend of HK$2.6 per share,yielding 9%. We maintain Hold as we believe that the share price will besupported by its commitment to paying absolute dividend.
NP reported a 6% decline to HK$1.3bn on 18% decline in sales to HK$4.7bn.
The decline in sales was due partly to the disposal of the Taiwanese operationand partly to the weak adex market in HK. Core EBIT reported a 40% declineyoy to HK$1.02bn in 2015 on sales of HK$4.5bn, constituting a 9% yoy decline.The Chinese operation has been disappointing, with a dispute with TodouYukuand no progress on the renegotiation of better terms in Guangdong.
myTV SUPER – an interesting model to regain ratings and young eyeballs
2016 operating outlook remains challenging for the HK, Chinese and overseasoperations. TVB’s focus is on launching myTV SUPER on 18 April 2016 – aninternet TV service, but bundled with ISPs’ other services. It is not exclusiveand consumers can also purchase the STB. It is adopting the Taiwanese modelwith a low basic fee in order to gain stickiness. It will gain from premiumservice and additional advertisements. It targets 1.4m screens by Nov 2019.
9.2 % dividend yield; strong balance sheet limits downside risks.
We lower the target price to HK$27.96 from HK$30.02 in line with the NPrevision for 2017. For 2016 the key change is from adding investment losseson OTT and an adjustment of associates with the disposal of Taiwaneseoperation. 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. Unless the operation is hugely lossmaking in 2017-18, we believe it has the capability and sufficient reserve topay its HK$1.13bn dividend for each of 2016-18. Downside risks: potential newentrants to FTA TV in Hong Kong and the Chinese initiative’s failure tomonetise. Upside risk: stronger-than-expected growth in the HK operation.