HK adex down by double digits in 1Q16; still under pressure
At its press conference following the AGM, management commented thatadex fell by 10-20% in 1Q16, with a 30-50% decline for magazines focused onthe luxury segment, quoting an industry report. Thus, adex remains underpressure in the HK broadcasting business. Management hopes to gain marketshare through new services, such as the OTT business. For the first year,however, it expects losses in the tens of millions. Management alsomaintained its opex forecast for the Rio Olympics at around HK$150m, ascommented during the 2015 results meeting in March.
As for competition from ViuTV, operated by PCCW (0008.HK NR),management believes that the new FTV station targets a different audienceand there is no overlap. Based on its latest rating figures, TVB Jade’s ratingsduring prime time were affected by 2-3 points at most.
Deutsche Bank’s view
AdmanGo announced on 26 May that HK adex sales declined by 12% yoy toHK$3.3bn (post 40% discount) in April, vs 13%/18% in March/Feb respectively.TV accounted for 30% of the pie. For 1Q16, TV adex declined by 19% toHK$7bn of which TVB declined by 6%, Now TV 82% and i-cable 16%,according to admango. In our model, we expect a 9% decline in adex for 2016.Based on the current macro environment, we believe HK operations remaintough. Strategically, the key focus for 2016 is to promote myTV SUPER(launched in April 2016), an OTT service intended to win viewership andratings (target of 1.4m screens by November 2017). We maintain Hold as webelieve that the share price should be supported by its commitment to payingan absolute dividend.