Analyst Sees Positive Outlook on RS-WORK Partnership, Recomm. “BUY” with a TP at ฿19!

KTB Securities (KTBST) has reiterated the “BUY” rating on RS Public Company Limited (RS) with an unchanged DCF-based target price of Bt19.00, using WACC of 10.8%, terminal growth of 2.8%, which is an equivalent to 2020 PER of 24.8x.

 

RS recently announced a partnership with Workpoint Entertainment Public Company Limited (WORK) to open “Wellness Shop” to distribute RS’s Lifestar and its partners’ products through Workpoint TV and online channels.

RS expects the move to generate revenue of Bt500mn in 2020E and Bt1bn in 2021E. KTBST believes such the move is a win-win strategy for both RS and WORK, while the partnership with WORK should generate relatively stronger revenue given a higher TV rating of 0.959 in 9M19, compared to Thairath TV’s 0.621. Thus, KTBST still maintains its 2019E net profit forecast of Bt584mn, up +13% YoY.

 

KTBST is positive about the move on the partnership with WORK, which should benefit both RS and WORK (BUY/ Bt.36.00). According to KTBST’s inquiries with RS, the collaboration with WORK has a similar model to the partnership with Thairath TV, which normally generates revenue of Bt700,000-800,000/day, on average.

The move would raise net profit by Bt125mn and Bt250mn in 2020E-21E based on the company’s revenue target (Bt500mn in 2020E, Bt1bn in 2021E), KTBST’s forecast and RS’ customer base of 2mn people. However, KTBST has yet incorporated it into the model.

As for WORK, KTBST expects the collaboration to boost WORK’s revenue by Bt150mn in 2020E based on the forecast and WORK’s 30% revenue sharing from Wellness Shop. With WORK’s TV rating higher than Thairath TV, 0.959 vs 0.621 in 9M19, KTBST expects revenue earned from WPTV to outnumber that of Thairath TV. Through WPTV, RS will begin broadcasting advertisement three slots a day for 10 minutes each during the weekdays, starting in December.

 

RS’s share price has slumped 14% over the past three months, which KTBST believes already reflected its weak earnings performance. KTBST views the decline as an opportunity to increase positions, as, in addition to attractive valuation trading at an undemanding PER of 19.8x, RS channel rating has improved in July after RS revamped its TV program by moving Thai drama series to primetime and Indian series to later in the night.

KTBST’s DCF-based target price remains unchanged at Bt19.00, implying WACC of 10.8% and terminal growth of 2.8%, which is an equivalent to 2020 PER of 24.8x. KTBST sees growth potential in RS’s MPC business in the wake of partnership with Thairath TV and WORK. The key risk will be slowed consumer spending.