TP at HK$26.32; yielding 9%
We lower our TP by 6% due to the 11%/14%/8% NP cut for FY16/17/18E. Weexpect weaker HK adex for 2016 (11% decline vs. 9% previously), based onJan-May retail sales. Given the small capex, net cash position and free cashflow from operations, it plans to maintain its absolute dividend of HK$2.6 pershare, yielding 9%. We maintain our Hold, as we believe that the share pricewill be supported by its commitment to paying an absolute dividend.
Budging weaker HK adex for FY16
With HK retail sales for Jan-May declining by 10.8%, vs. 1.6% in 1H15 and3.7% for 2015, we now assume TVB’s adex will decline by 11% yoy for FY16Evs. the 9% previously expected. Meanwhile, the company’s key task is to rollout its OTT service and to reach 1.4m screens by 2017. As of the end of June,HK broadband has signed up over 100,000 subscribers. We believe this isahead of TVB management’s expectations, based on run rate.
1H16 NP of HK$295m; HK free-TV adex to decline by 12%
For 1H16, we expect NP of HK$295m, a 74% yoy decline on a 20% decline insales to HK$1.8bn. On a like-for-like basis, segment profit declined by 19% ona sales drop of 9%. The free-TV business is expected to record a 12% declinein adex for 1H16.
9% dividend yield; strong balance sheet limits downside risks
We lower our target price to HK$26.32 from HK$27.96 on the back of an11%/14%/8% NP cut for FY16/17/18 respectively. We base our DCF-derivedtarget 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 loss-making in 2017-18, we believe it hasthe capability and sufficient reserves to pay its HK$1.13bn dividend for each of2016-18. Downside risks: potential new entrants to FTA TV in Hong Kong andthe Chinese initiative’s failure to monetize. Upside risk: stronger-than-expectedgrowth in the HK operation.