Two new free-to-air TV licenses awarded
The HK government announced that Hong Kong Television EntertainmentCompany Ltd. (under PCCW) and Fantastic Television Ltd. (under i-Cable) have been awarded new free-to-air TV licenses. The timing of issuance came as asurprise to the market; our previous base case assumed no license to be awardedbefore late 2015. We note that this is a bad – though not the worst – outcome for TVB, given that HKTV, the most aggressive competitor, was not granted a license.
Higher talent retention costs likely
We anticipate a limited top-line impact for TVB in the medium term as 1)advertisers are unlikely to switch away from TVB before ratings on the new free-to-air channels pick up; 2) we do not rule out the possibility of TVB/ATV/HKTVfiling an appeal, in turn stalling the ramp-up process for new free-to-air operators. However, more free-to-air operators will likely lead to higher talent retention costs for TVB.
9-18% cut to 2014/15E earnings
We cut our 2014/15E earnings forecast by 9%/18% to reflect higher talentretention costs. We anticipate 2014/15E total production costs to increase 11% and8% YoY.
Valuation – Downgrade to Sell
We downgrade our rating to Sell (from Buy) and lower our PT to HK$45.0 (fromHK$62.0) on the back of higher talent retention costs. We derive our PT from aDCF-b ased methodology and explicitly forecast LT valuation drivers using UBS’sVCAM tool.
Two new free-to-air TV licenses awarded
The HK government announced that Hong Kong Television EntertainmentCompany Ltd. (under PCCW) and Fantastic Television Ltd. (under i-Cable) have been awarded new free-to-air TV licenses. The timing of issuance came as asurprise to the market; our previous base case assumed no license to be awardedbefore late 2015. We note that this is a bad – though not the worst – outcome for TVB, given that HKTV, the most aggressive competitor, was not granted a license.
Higher talent retention costs likely
We anticipate a limited top-line impact for TVB in the medium term as 1)advertisers are unlikely to switch away from TVB before ratings on the new free-to-air channels pick up; 2) we do not rule out the possibility of TVB/ATV/HKTVfiling an appeal, in turn stalling the ramp-up process for new free-to-air operators. However, more free-to-air operators will likely lead to higher talent retention costs for TVB.
9-18% cut to 2014/15E earnings
We cut our 2014/15E earnings forecast by 9%/18% to reflect higher talentretention costs. We anticipate 2014/15E total production costs to increase 11% and8% YoY.
Valuation – Downgrade to Sell
We downgrade our rating to Sell (from Buy) and lower our PT to HK$45.0 (fromHK$62.0) on the back of higher talent retention costs. We derive our PT from aDCF-b ased methodology and explicitly forecast LT valuation drivers using UBS’sVCAM tool.
