TVB announced on 16 Aug that the government is approving Li Rui Gang tobecome a non-executive director of the company. For reference, Mr. Li needsapproval under the Broadcasting Ordinance, as he is regarded as a disqualifiedperson because he has an advertising agency business in China and overseasand is also a non-domestic television program service licensee.
Mr Li will not participate in the daily operation of TVB, according to TVB. Hewill advise on general corporate planning and business strategies andcontribute to the long-term growth of TVB, with his unrivaled connections bothwithin China and internationally.
Separately, TVB announced on 8 Aug that its number of myTV SUPER usershad exceeded 0.5m since its launch on 18 Apr 2016. Around 220,000 OTTboxes have been sold through various channels and it has 280,000 activemobile app users. It also added beIN SPORTS to the platform.
Deutsche Bank view
Although TVB’s China operation has not experienced any breakthrough sinceMr. Li became a shareholder of TVB through Young Lion in April 15, the movesignals the further involvement of Mr. Li in TVB’s strategy, in our view. Wehope TVB can finally leverage his connections and experience in TV stationoperations, content production, new media platforms and sports media, andexplore business opportunities in China.
Regarding the OTT development, it is TVB’s key task to reach 1.4m screens by2017. As of the end of June, we believe it is tracking ahead of TVBmanagement’s expectations, based on run rate.
We view both developments as good news and expect investors to view bothpieces of news positively too. However, we expect 2016 to be a challengingyear for TV on adex revenues, as retail sales has been weak. The recent samestore sales recovery trend for HK retailers might suggest potential upside riskfor HK advertising revenues in H2, as adex is highly correlated to retail salesand more volatile. The current share price is supported by the dividend yield.To recap, management guided for maintaining the absolute dividend for 2016at the same level as in 2015, given the strong cash flow.