GMM Grammy

GMM Grammy Plc (GRAMMY)  

Investment thesis

Although reducing its stake holding in GMM ONE to 51% will reduce GRAMMY’s share of the future profits from ONE digital TV channel, it secures the tenure of Mr Takonkiet Viravan for the long-term. Our BUY rating stands, premised on a bottom-line recovery and long-term growth at the digital TV business. We have revised down our YE15 target price by 14% to Bt22.4 to factor in GRAMMY’s reduced holding in GMM ONE and a deeper net loss forecast for FY15.  

Mr Takonkiet comes in as 49% shareholder of GMM ONE 

On Dec 24, 2014, GRAMMY offered subscription rights to a capital increase for GMM ONE TV Trading Co Ltd (GMM ONE), which holds 100% of GMM ONE TV Co Ltd (the operator of its ONE Channel digital TV channel), to a group led by Mr Takonkiet Viravan, the CEO of GMM ONE TV Co Ltd, for Bt440.8m (4.4m shares at Bt100 apiece). Following the transaction, the shareholding of Mr Takonkiet’s group in GMM ONE will be 49% and GRAMMY’s stake will drop from 100% to 51%. 

The decline in GRAMMY’s stake will reduce its share of profits, but secures the services of Mr Takonkiet, who has a successful track record in developing TV programming and other aspects of the entertainment industry. 

Higher audience shares and ratings for digital TV channels

ONE channel’s audience share jumped from 0.77% in Nov to 1.28% in Dec and GMM channel’s audience share rose from 0.26% in Nov to 0.31% in Dec. The ratings of ONE and GMM channels rose from 0.058 and 0.019, respectively, in Nov to 0.092 and 0.023 in Dec. We believe the ratings will increase further, led by new content, such as the popular The Star 11 in 1Q15. The firm targets achieving a rating in the top-five of commercial digital channels this year.

Much shallower YoY net loss expected for 4Q14

We expect GRAMMY’s 4Q14 top-line to post a rise of 10% QoQ but a dip 3% YoY. Its home shopping business broke even in Nov (average daily sales of Bt4m) after reporting a net loss of Bt14m for 3Q14. We now expect GRAMMY’s 4Q14 net loss at Bt200m, shallower by 62% YoY but deeper by 22% QoQ. The assumed greater QoQ loss is because of increased OPEX tied to digital TV.

We have revised our FY15 net loss forecast deeper by 35% to Bt420m, due to lower net mean ad rate assumptions for its digital TV unit in FY15 (from Bt38k/min to Bt26k/min for ONE Channel and from Bt35k to Bt25k for GMM Channel).