This company, which primarily creates and acquires content (drama and comedy) and distributes by cable TV network, physical media, and digital channels, has been grouped into content maker - drama& film sector in video &audio goods and service industry.
It seems that demand for subscription for paid linear channels (drama and film) has been weak and presented a general downturn trend as indicated by declining number of subscribers for most of channels. To lower costs of subscribers and deal with declining demand for TV channels, the platform operators of distribution decrease bundles of channels, which caused large difficulties for many less attractive TV channels in maintaining their viewers. However, the more specific bundle of TV channels and the availability to subscribe for specific channel from digital platform helps stimulates demand for some of better channels from those who, otherwise, would not like to subscribe a bundle of channels from TV distributors. We have seen fast increase in subscription for some of smaller channels. However, for most of companies the growth from digital platform is too slow to offset their loss in linear cable platform. It seems that many companies depend on raising contractual rates for their channels to deal with declining subscribers.
In the downward trend of TV industry, companies’ revenue of advertising has declined accordingly as well.
There is a downward trend (except for China) in the industry of motion picture, which may be rooted to declining admissions of theatres in those regions.
The general decrease in subscription has hurt profitability of those TV channels makers in this sector. However, we have seen increasing margins for many companies in this sector in 2018 probably attributable to quick increase in consumers’ demand for video content and continuingly increasing subscription for their digital platform. The typical company in this sector has an about 44-47% gross margin in 2018 with a SG&A as percentage of sales of about 22% and operating margin of 24%.
The typical enterprise price/EBI ratio is 13 (12 months trailing).
It seems that domestic demand for subscription for channels of this company has not been strong. Subscription has been growing as a result of continuingly rising contractual rate. As subscribers stayed away and declining rating, its advertising revenue fell as well (3-9% annual decrease).
The first three months of fiscal 2018 compared with the same period of 2017(ended Mar 31, 2018)
Net revenue increased 3%.
Domestic advertising revenue decreased about 9% (lower rating offset by higher pricing)
International advertising revenue increased 12%.
Domestic distribution revenue increased about 11% attributable to high content licensing revenue and higher rates of subscription of channels.
International affiliate revenue increased 2.5%.
Fiscal 2017 compared with fiscal 2016
Net revenue increased about 2%.
Domestic advertising revenue decreased about 3% (lower rating offset by higher pricing)
International advertising revenue decreased 5%.
Domestic distribution revenue increased about 7% attributable to high content licensing revenue and higher rates of subscription of channels.
International affiliate revenue increased 0.5%.
Fiscal 2016 compared with fiscal 2015
Net revenue increased 7%.
Domestic advertising revenue increased about 5% (higher demand and pricing)
International advertising revenue increased 14%.
Domestic distribution revenue increased about 11% attributable to high content licensing revenue and higher rates of subscription of channels.
International affiliate revenue decreased 1%.
Its gross margin has been down from about 53% to 49% since 2015 primarily due to higher program costs (higher proportion of original content). This company’s SG&A as percentage of sales went down to about 22% and we have seen slightly decreased operating margin (about 27% in 2018 for 12 month trailing).
Stock performance
Currently this company has an enterprise price/EBI ratio of about 14(12 month trailing). We think this stock may be slightly undervalued considering its peers’ ration and its strong performance in its international market.
