JKN Falls 17% in 4 Days! Analyst Reiterates BUY at ฿12.40, Seeing Brighter Outlook in 2H!

In the morning session on July 18, 2019, the share price of JKN Global Media Public Company Limited (JKN) has marked its plummet for four days in a row to close the session at ฿8.35/share. The share price plunged for a total of ฿1.45/share or 17.36% since closing at ฿9.80/share on July 12.

 

KTB Securities (KTBST) stated that it still reiterated the “BUY” rating on JKN with an unchanged DCF-based target price of ฿12.40/share, or 2019E PER of 23.4x. JKN’s 2Q19E total revenue is expected to continue to grow YoY, QoQ both domestic and overseas markets, but seasonal factors are likely to take a toll on the bottom line QoQ.

Despite this, KTBST foresaw brighter earnings outlook in 2H19E as JKN is expected to begin recognizing ad revenue from its JKN-CNBC program in 3Q19E and the company would welcome two new TV digital customers. Coupled with JKN’s substantial backlog, KTBST  believed the 2019E revenue of THB 1.62 billion (+15% YoY) will be achievable, which should boost 2019E net profit by +25% YoY to THB 285 million.

The inquiry KTBST made with JKN has reinforced its positive view, as management has maintained its 2019E revenue target. Thus, KTBST viewed a sharp decline of -11% on July 17 as an opportunity to increase position in JKN’s shares, while the stock remains attractive trading at an undemanding PER of 16.2x, compared to its peers.

 

2Q19E earnings preview
KTBST expected 2Q19E net profit to remain flat YoY, but to decline QoQ. The 2Q19E net profit to stay level YoY but to soften -16% QoQ as:

1) Total revenue would grow +25% YoY to THB 426 million with content revenue rising +44% YoY, domestic revenue up +39% YoY to THB 301 million, full-quarter revenue recognition from selling contents to TVD, and overseas revenue soaring 60% YoY to THB 123 million.

2) Gross profit margin is expected to widen YoY on higher content revenue for digital TV channels.

3) SG&A expense would increase slightly on higher HR expense to support its JKN-CNBC program, which started to air in July. A QoQ decline would be due to seasonal factors.

KTBST still maintained 2019E earnings forecast, based on the assumption, 1H19E net profit will account for 52% of our 2019E forecast, while KTBST expected 2H19E net profit to grow +54% YoY. A significant growth outlook would be due primarily to a low base in 2H18, stream of ad revenue from JKN-CNBC program, starting from 3Q19E, and content revenue from domestic and overseas markets.

KTBST expected 2019E net profit to grow +25% to THB 285 million on the assumption that 1) total revenue (domestic and overseas markets) will climb further +18% to THB 1.55 billion with overseas revenue rising +17.5% to THB 450 million (28% of the total), as JKN is expected to welcome more customers in 2H19E, including MONO and PPTV channels, sale of broadcasting rights for Indian series to TVD, recognition of ad revenue approximately THB 50 million from JKN-CNBC program; and 2) gross profit margin will widen to 40.3% from 37.4% in 2018.

 

Valuation/Catalyst/Risk
The target price KTBST gave at ฿12.40/share was based on DCF method, using WACC of 10.8% and terminal growth of 2.8%, which is an equivalent to 2019E PER of 23.4x. JKN’s horizontal expansion to become content producer should propel earnings growth in the long term, while KTBST saw room for JKN to extend its market presence in overseas market. Key risk is popularity of Indian and Philippine series.