KTB Securities (Thailand) (KTBST) has maintained a “BUY” recommendation on RS Public Company Limited (RS) with a target price rising to ฿18/share (previously ฿13.5/share) in expectation of 2H20E & 2021E earnings to grow significantly.
RS’s share price outperformed the SET Index by 40% in three months. KTBST believes downside risk from the current level will be limited as 1) a strong earnings growth outlook in 2020-21E (+43-22% YoY), and 2) the stock’s valuation remains attractive, trading at 2021E PER of 23.0x. KTBST sees upside in the forecast, as commerce revenue may come in stronger than expected.
KTBST forecasts 2Q20E net profit to drop -26% YoY, -62% QoQ to ฿71mn in expectation of lower revenue and blended gross profit margin.
While, total revenue would decline -6% YoY, -14% QoQ on a reduction in revenue across all business, except commerce business. Revenue from media business would drop -24% YoY, -47% QoQ as capacity utilization is estimated to decrease to 40-45% from 65% in 1Q19 while average ad rate has declined YoY but remained flat QoQ. Copyrights revenue (OTT platform) would decline QoQ to ฿30mn from ฿90mn in 1Q20, and revenue from music and other businesses would slump -38% YoY, -45% QoQ due to a postponement of numerous events. Contrarily, revenue from commerce business would grow +9% YoY, +18% QoQ to ฿590mn, which is likely to hit a record high, on the back of its distribution network expansion (Channel 3 HD), a full-quarter revenue from Amarin TV, and its big promotion event “RS Mall mid-year sale”.
KTBST sees blended gross profit margin would widen YoY but narrow QoQ. A rise YoY would contribute to higher MPC revenue and a decrease in logistics cost, as RS’s business partners started to absorb logistics cost from the start of June. A decline QoQ would be due to a narrower gross profit margin in the media business (OTT platform) and lower utilization in TV ad media capacity.
In addition, KTBST forecasts 2Q20E earnings to grow HoH, YoY as 1) commerce revenue is estimated to grow further HoH on the back of its network expansion through retail, eCommerce, and wholesaler; 2) media revenue would improve HoH, YoY in expectation of higher ad spending following improvement in the COVID-19 situation; 3) revenue from music and other businesses would see improvement in 3Q20 given the company’s several events schedule from late 3Q20 and two concerts in 4Q20; and 4) blended gross profit margin would widen HoH, YoY.
KTBST also maintains its forecast on 2020E net profit to grow significantly +43% to ฿519mn on higher revenue and blended gross profit margin. Total revenue would increase +5% with commerce to rise +11% and media +7%, but music and other businesses would drop 23% due to the COVID-19 outbreak; 2) blended gross profit margin would widen to 50% on the back of improved gross profit margin in the media business given a reduction in amortization charges for a digital TV license, payment to USO fee and MUX.
In 2021, KTBST expects RS’s net profit to grow a further +22% to ฿633mn, as total revenue would increase +11% and blended gross profit margin would widen, potentially boosted by the commerce and media business, and a full-year exemption of payment to MUX.
KTBST rises a target price to ฿18.00 from ฿13.50 and target PER to 27.7x (-1 SD below its 4-yr average) from 25.2x, as KTBST roll forward the valuation to 2021E base. After having bottomed out in 2019, KTBST believes RS’s earnings will hit higher highs in 2020-22E, as estimated EPS to grow at 24% CAGR in 2019-2022E, apart from a potential upside from M&A and stronger-than-expected commerce revenue.