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Monday, April 14, 2014

ABS-CBN Corporation: Earnings outperform on non-recurring gains

Earnings up 25%, above COL estimates. For the FY13 period, ABS’ earnings settled at Php2.0Bil, up 25% y/y. Earnings exceeded COL forecasts by 10.6%, by fell below consensus estimates. ABS’s earnings exceeded our expectations mostly due to higher than expected non-recurring revenues. ABS’ non-recurring revenues, mostly comprising of election-related ad placements, settled at Php1.5Bil, 66% higher than our estimates. Without non-recurring items, earnings would have been flat at Php1.9Bil, in-line with our forecasts.

Core businesses perform as expected. ABS’ recurring net revenues settled at Php31.5Bil, up 9% y/y and in-line with COL estimates. Growth in the company’s core businesses was driven by the 8% average ad rate hike for the year, as well as organic growth in its consumer sales businesses. Total operating costs were also in-line with COL estimates, settling at Php30.2Bil, up 11% y/y. The growth in operating costs was mainly driven by 10% growth in production costs due to the reformatting of weak timeslots, especially in the morning block.

Mobile segment registers strong take-up sales, but losses still expected this year. ABS’ mobile segment, which is one of its most notable new segments, is registering take-up sales that are stronger than management initially expected. Management reports that the segment currently has 250,000 subscribers, and is seeing 2500-3000 activations on a daily basis. In light of this, management has revised its breakeven target from 4Mil subscribers to 2Mil subscribers at an ARPU assumption of Php300 per subscriber. Management expects a total of Php700Mil in losses for the year.

Reiterate BUY rating

We currently have a BUY rating on ABS with a FV estimate of Php40.5/sh. We continue to like ABS for its leadership position in the industry, as well as its attractive valuation. Even though ABS’ stock price has risen 15% to Php34.50/sh since we initiated coverage, upside to our FV estimate is still significant at 17.4%. Moreover, ABS is currently trading at an EV/EBITDA of 5.0X, a significant discount to the regional average of 9.2X and GMA7’s 9.4X.

Source: COL Financial

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