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KONTIKI STOCKBROKING

ReportDate:December2010

Research
FTVFY2010ResultUpdate

FijiTelevisionLimited
Recommendation:STRONGBUY

Highlights
KeyDetails FinancialYearEnd Valuation LastTradePrice ProsFY2011PE ProsFY2011EV/EBITDA HistoricalDividendYield MarketCapitalisation 52WeekHigh 52WeekLow BestBid BestOffer 30June $4.22 $2.99 12.9x 1.1x 3.3% $30.80m $3.25 $2.99 N/A $3.00
40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2006 2007 2008 2009 2010 2011F 2012F 2013F

Totalrevenuefortheyearended30June2010increasedto$29.23m,up9.9%on FY2009 while NPAT improved to $3.22m an increase of 381% over the last financialyear. Forthefinancialyearending30June2011,weexpectrevenuetorise7.0%year onyearto$31.27m,andNPATtorise4.87%to$3.37m. EffectivecostmanagementinitiativeshaveseenFTVsprofitmarginsstrengthen. MNLisexpectedtogrowaggressivelyinparallelwiththePNGeconomywhichis anticipatedtohavedoubledigitgrowth. OurDCFvaluationof$4.22impliesaprospectivePEof12.9x,andEV/EBITDAof 1.1x.

Revenue($m)

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0

EBITDA($m)

Analyst Details Jignesh Pala


Tel: Fax: Email: (679) 330 7284 (679) 330 7241 Jignesh@kontiki.com.fj

1.0 0.0 2006 2007 2008 2009 2010 2011F 2012F 2013F

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KONTIKI STOCKBROKING
ReportDate:December2010

Research
FTVFY2010ResultUpdate

FijiTelevisionLimited
Recommendation:STRONGBUY
PricePerformance

NPAT($m)
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2006 2007 2008 2009 2010 2011F 2012F 2013F

6.00 5.00 4.00 3.00 2.00 1.00 0.00

190 175 160 145 130 115 100

BACKGROUND FTV is the oldest and market dominant television broadcaster in Fiji. It was established in 1994, when it secured a 15year exclusive license to provide freetoair and pay TV services in Fiji. However, after the Governmentsreviewof2000,exclusivitywasremovedandlicencewasreducedto12years. SKY Fiji commenced in 1996, offering a range of channels, including Sky Plus, Sky entertainment and Sky Sports.Inlate2004FijiTVacquiredMediaNiuginiLtd(MNL),theparentcompanyofPNGsmainfreetoair station,EMTV,fromAustraliasChannel9. SKY Pacific commenced in April 2005, increasing Fiji TVs coverage to 100% of the Fiji Islands, as well as neighbouringPacificIslandTonga,Samoa,Vanuatu,SolomonIslands,NewCaledonia,Nauru,CookIslands, Niue,Tokelau,andKiribati. Fiji TV continued expanding, purchasing Communications Pacific Limited (COMPAC) in 2006 from Fijian HoldingsLtd.COMPACscorebusinessisinthesalesandservicesofradio,televisionandcommunications products,withtransmissiontowerslocatedaroundFiji. FijiTVnowcommandstwofreetoairservices,FijiOneinFijiandEMTVinPNGinadditiontopayTVservices whichincludeSkyFijiinFijiandSkyPacificforthebroaderPacificregion. BUSINESS ANALYSIS Performance: Since listing, FTVs operating revenue has grown steadily despite tough economic conditions and political instability. For its last financial year (June 30, 2010) FTV released someimpressiveresultswithtotalrevenueincreasingtoarecordhighof$29.23m,9.9%up onFY2009withNPATreportedat$3.22m,anincrease381%overFY2009,thehighestsince FY2006. The key to achieving these results have been the efficient management of resources and thereductionofoperatingandadministrationcost.FTVsCOGSforFY2010wasrecordedat $8.98m,around30.7%oftotalrevenuecomparedto$8.64mor32.5%oftotalrevenuefor the corresponding period last year. According to management this was largely due to betterpricingfromcontentsuppliersduetoweakglobaleconomicconditions. FTV also managed to reduce its SG&A by a notable 6.7% to $12.48m (FY2009: $13.38m). Despite the noticeable reduction in SG&A, management has affirmed that there were no
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Effective cost management has seen FTV increase its EBITDA by69%inFY2010.

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KONTIKI STOCKBROKING
ReportDate:December2010

Research
FTVFY2010ResultUpdate

FijiTelevisionLimited
Recommendation:STRONGBUY

redundancies or pay cuts and most of the reduction in SG&A was achieved through stringentcostmanagementpolicies. Asaresult,FTVsEBITDAfortheFY2010wasrecordedatanalltimehighof$7.77m,69% morethanFY2009and27%morethanFY2005whereitachievedanEBITDAof$6.11m. Thecompanysreturnonequityreached15.6%inFY2010comparedtoonly3.5%lastyear. FTV paid a total dividend of 10 cents per share in FY2010, down 8 cents on the previous yearsdividendpayment. Yearend:30June TotalRevenue EBITDA Depreciation EBIT Interest EBT TAX NPAT

FY2009 26,607,533 4,590,368 (2,174,152) 2,416,216 (4,736) 2,411,480 (1,743,352) 668,128

FY2010 29,230,731 7,771,684 (2,234,426) 5,537,258 (16,797) 5,520,461 (2,304,336) 3,216,125

Change 9.9% 69.3% 2.8% 129.2% 254.7% 128.9% 32.2% 381.4%

Outlook:

GiventheFY2010results,theprospectsforFTVlookencouraging. Ontherevenuefront,advertisingrevenuefromFijiOnehasbeenonadecliningtrendfor the past few years. Since advertising is positively correlated to economic situations this trend is likely to continue in line with the tough economic climate faced by majority of FTVscustomers. However,webelievethatmostofFTVsgrowthwillcomefromitsPNGsubsidiary.MNLs revenue has grown by 18.2% per annum on average since FY2007. For FY2010 MNL recordedanincreaseof13.8%inrevenueoverthesameperiodlastyearandanincreaseof 16.7%inNPAT.ThistypeofaggressivegrowthislikelysincethegrowthofMNLisexpected tobe paralleltothegrowingPNGeconomy.AsPNGseconomyexpands,advertisingand programsponsorshipopportunitiesshouldriseforMNL. SkyPacificshouldalsoexperienceamodestincreaseinitssubscriberbaseinlightofFTV acquiringthebroadcastingrightsforthe2011RugbyWorldCup.Additionally,withSkyFiji beingprogressivelyphasedout,themajorityofcustomershavenowmigratedtoSkyPacific with an insignificant number remaining. In addition the increase in scrutiny of pirated moviesshouldalsohelpthePayTVsegment. COMPACispoisedtomakeapositivecontributiontothegroupsperformance,asitstrives tosecuresomemajorcontracts.Duringthe2010financialyearthecompanymanagedto acquire some major structured cabling projects boosting its revenue by 59.3% and recordingitsfirstprofitaftertaxof$56,944,animpressivefeatcomparedtothenetlossof $565,125fortheFY2009.

MNLs revenue has increased by an average of 18.2% per annumsince2007.

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KONTIKI STOCKBROKING
ReportDate:December2010

Research
FTVFY2010ResultUpdate

FijiTelevisionLimited
Recommendation:STRONGBUY

COMPAC recorded a NPAT of $0.06m in FY2010 compared to a Net Loss of $0.57m in FY2009.

As discussed in our last report, cost management will be a critical issue for FTV going forward. A large component of FTVs expenditure is made up of content cost which accounts for approximately 45% of total cost. With both operating and overhead costs rising much faster than revenues in recent years, profitability has declined sharply when comparedwithearlieryears. GiventheFY2010results,FTVdidmanagetoreducethesecostsbyincreasinglocalcontent andsourcingoverseascontentatacheaperratebybettercontractnegotiations.Although this is an encouraging trend, further reduction in programming and delivery costs will be hard to achieve since viewers of both free to air and pay TV will demand newer content whichmaybemoreexpensive. Additionally, increased competition is likely to push programming costs up. Bidding from Mai TV has seen FTV lose out on its bid for the Soccer World Cup 2010. With tight competitionandlongtermpricingpressuresonprogramming,thereareconcernsthatthe recentreductioninCOGScannotbesustained. FTVsfixedcostsarealsosignificant,andthisistheareawheremanagementhasachieved some remarkable results. The groups SG&A for the FY2010 decreased by a significant $0.90moverthelastfinancialyear.Whilethissortofcostreductionisunlikelytocontinue into the future, we are optimistic that SG&A will remain at a more manageable level comparedtoprioryearswhereitrosebyanaverageof$2.90mperannumfromFY2005to FY2007. A reduction in these fixed costs essentially means that revenues from attracting new subscribersandadditionaladvertisingdollarsflowquicklytoprofit. Giventheabove,weestimatethatFTVstotalrevenuewillincreaseby7.0%to$31.27mfor the2011financialyearwhileNPATisestimatedtoincreaseby4.87%inFY2011to$3.37m from$3.22minlinewithimprovingmarginsthroughefficientcostmanagement.

Our key area of concern with regard to FTV is the low returns being generated from the huge cash mountain it is currently sitting on, which at 30 June 2010 was $9.69m. With around 94 cents per share being held in cash, coupled with practically no debt on the balancesheet,webelievearedistributionofaportionofthiscashbacktoshareholdersis reasonable.Furthermore,webelievethatfuturedividendpayoutratiosshouldreachcloser tothe100%ratioasprojectedintheoriginalFTVprospectus. By way of comparison, all the television operators in Australia, and indeed most other jurisdictions,actuallycarrysignificantamountsofdebtontheirbalancesheets. BasedonFTVshistory,ithasalwaysheldasignificantamountofcash(averageof~$6.28m perannumsince2001)andthisisoneofthereasonsithasbeenabletocarryoutmajor acquisitions and capital expenditure projects such as SKY Pacific, MNL and COMPAC. The mounting cash balance could be a sign of another major capital project or acquisition. Additionally, it should be noted that most of the cash, is held by MNL and maybe it is prudentforthecompanytostayliquidinavolatilemarketsuchasPNG. ThefollowingtablesummarisesFTVspastresults,alongwithforecastsfor2011to2013.
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KONTIKI STOCKBROKING
ReportDate:December2010
YearEnd:30June TotalRevenue($m) EBITDA($m) NetProfit($m) Earningspershare EPSgrowth EV/EBITDA P/E P/B NetProfitMargin OperatingRevenue/Assets Assets/Equity ROE Dividendpershare($) DividendYield NetDebt/Equity 2006 21.8 4.1 3.6 0.3 (18.8%) 12.5 16.1 3.2 16.5% 0.9 1.3 19.7% $0.18 3.2% (0.3)

Research
FTVFY2010ResultUpdate
2007 24.6 3.8 0.9 0.1 (76.2%) 11.3 54.1 2.6 3.5% 1.0 1.4 4.9% $0.18 4.0% (0.2) 2008 27.0 5.6 2.7 0.3 219.2% 4.9 12.7 1.8 10.1% 1.0 1.4 14.0% $0.18 5.4% (0.4) 2009 26.6 4.6 0.7 0.1 (75.6%) 5.5 51.6 1.8 2.5% 1.0 1.5 3.5% $0.18 5.4% (0.5) 2010 29.2 7.8 3.2 0.3 381.4% 3.0 10.4 1.6 11.0% 1.1 1.3 15.6% $0.10 3.1% (0.5)

FijiTelevisionLimited
Recommendation:STRONGBUY
2011F 31.3 7.4 3.4 0.3 4.9% 2.9 9.1 1.4 10.8% 1.2 1.3 15.8% $0.26 8.8% (0.4) 2012F 33.4 7.4 3.5 0.3 4.2% 2.8 8.8 1.4 10.5% 1.2 1.3 16.0% $0.27 9.1% (0.5) 2013F 35.6 7.5 3.6 0.4 3.3% 2.7 8.5 1.4 10.2% 1.2 1.3 16.2% $0.32 10.6% (0.5)

VALUATION AND ASSUMPTIONS Valuation: WecalculatedFTVsequityvalueat$4.22persharebasedonourupdateddiscountedcash flow(DCF)model,upfromourestimateof$4.02pershareinMarchthisyear.Thisincrease reflectstheimprovedperformanceachievedbyFTVfor2010asdiscussedabove. Atthelasttradepriceof$2.99,FTVistradingat41%discounttoourcurrentvaluationand thereforeourratingofthestockisSTRONGBUY. Thefollowingtablesummarisessomeofthecomparativemultiplesforsimilarinstitutions:
Company TenNetwork(Aus) SevenNetwork(Aus) PrimeTelevision(Aus) SkyNetworkTV(NZ) FijiTelevision PE 10.9x 78.0x 12.4x 20.9x 9.6x EV/EBITDA 9.1x 40.7x 7.0x 8.0x 2.9x DividendYield 4.0% 4.2% 4.1% 3.9% 3.3% NetDebt/Equity 0.3 0.2 1.2 0.2 (0.5)

FTVs trailing PE and EV/EBITDA multiples are well below the listed TV companies in AustraliaandNewZealand.FTVsdividendyieldisalsocompetitiveagainstthecomparable companiesintheabovetable.ThisisdespiteFTVhavingsignificantcashbalancewhilethe

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KONTIKI STOCKBROKING
ReportDate:December2010

Research
FTVFY2010ResultUpdate

FijiTelevisionLimited
Recommendation:STRONGBUY

New Zealand and Australian TV companies having much more efficient balance sheets. FTVsdividendyieldcouldbepotentiallymuchhighergivenitshighcashbalance. We consider FTV shares to be significantly undervalued. However shares are rarely undervaluedwithoutreason.InanemergingmarketlikeFiji,dividendsareseenasoneof themostimportant,ifnottheonlytestofvaluebyinvestors.Hencedividendpolicyisthe keytoclosingthisgap. We also believe FTVs nonoptimal mix of debt to equity is dampening the companys valuation of $4.22 due to the subsequent high cost of capital (WACC : 14.6%), which is based on 100% equity weighting with no debt. Changing this to only 20% debt and 80% equitycoulddecreasetheWACCto12.9%andconsiderablyincreasethecompanysvalue. Assumptions: Ourvaluationisbasedonthefollowingassumptions:

Annualtotalrevenuegrowthof7.0%for2011,6.9%for2012and6.4%for2013. TotalCOGSaspercentageofoperatingrevenuebeing33.0%in2011&2012,and34.0%
in2013and35%thereafter.

Receivableturnoverdecreasestoapproximately61days,whilecreditorturnoverdrops
backto55days.

CAPEX of $3.10m in 2011, $2.13m in 2012, $1.97m in 2013 and around 4.0% of total
operatingrevenuethereafter.

Aweightedaveragecostofcapitalof14.6%. FTVistradingonaPEof9.1xand8.8xourFY2011andFY2012forecastsrespectively.
RISKS AND DISCLOSURES

FTVissusceptibletocurrencyrisksparticularlyPNGskinaagainstFijiDollarintermsofreportedprofits
andthevalueofcashheldbyMNL,andagainstdevelopedcountrycurrenciesintermsofprogramming purchaseprices.

FTVfacesincreasingcompetitioninthefreetoairsegmentwith MaiTVgrowinginstrength.MaiTVs
success in securing the Rugby League World Cup and 2010 Soccer World Cup underlines the potential threatthatMaiTVposes.

FTV Group presently faces limited competition in pay television. However, regulatory barriers to entry
havebeencut,andanincreaseineffectivecompetitionwouldputdownwardpressureonvalue.

The performance of FTVH and MNL commercial advertising and media services is sensitive to general
economic conditions and a weak environment will tend to discourage businesses from increasing their outlays on advertising as seen during FY2007 for FTVH. Conversely, an improving environment should encourageadditionaladvertisingexpenditure.

Politicalinstabilityand/orchangesinregulatoryortaxrulesmayaffectsalesandprofitmargins.

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KONTIKI STOCKBROKING
ReportDate:December2010

Research
FTVFY2010ResultUpdate

FijiTelevisionLimited
Recommendation:STRONGBUY

Forfurtherinformationortoplaceanorderpleasecontactoneofourlicensedbrokerorinvestmentadviser representativesbeloworcalluson(679)3307284Fax(679)3307241.
JackLowenstein DavidOliver RaghniKhatri Jack@kontiki.com.fj David@kontiki.com.fj Raghni@kontiki.com.fj GriffonEmose JigneshPala ElenoaKaloumaira Griffon@kontiki.com.fj Jignesh@kontiki.com.fj Elenoa@kontiki.com.fj

ExplanationoftheKontikirecommendationsystem

StrongBuy Buy Accumulate Hold Sell

likelytogeneratetotalreturnsof25%ormoreoverarolling12monthperiod. likelytoachievetotalreturnsof15%to25%overarolling12monthperiod. likelytoachievetotalreturnsof10%to15%overarolling12monthperiod. recognisesaprospectoftotalreturnsofplusorminus10%overarolling12monthperiod. reflectsourexpectationofpermanentdamagetocapitalforholdersofthisstock.

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