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MBA Exclusive: ABS-CBN Revs Up New Growth Engines

Philippines media conglomerate ABS-CBN could be in the first phase of a sweet spot. Much depends, however, on how new engines of growth scale up in the future.

Market sentiment is positive. ABS-CBN’s share price has skyrocketed up more than 60% this year (to yesterday’s close), following a 19% spike in 2014.

At yesterday’s closing price, the company was trading at a valuation of more than eight times what it generated in Ebitda over its last fiscal year.

Earnings and fundamentals have improved consistently over the last 12 months, thanks to cost controls combined with robust underlying growth across core TV and studio entertainment businesses.

ABS-CBN had ~US$300 million in cash at the end of last year, bulked up from bond proceeds. In 2015, a significant chunk will be invested in capital expenditure on DTT, broadband and pay-TV, and content rights.

In 2014, capEx was about US$125 million. The budget for 2015 is close to US$190 million.

"Ultimately, ABS-CBN wants to reach all 18 million TV homes in the Philippines with its content and distribution platforms over the next five years,” says Vivek Couto, director at industry consultants Media Partners Asia.

“At the same time, the company wants to extend its consumer conversations to the country's more than 5 million mobile broadband users and 2 million fixed broadband homes, as of end-2014,” Couto adds.

"Execution, alongside the development of sustainable business models, will drive ROI, but executives must contend with competitive intensity and fragmentation."

Over the last 12 to 18 months, ABS-CBN has outperformed most of its competitors in terms of ROI. Maintaining growth and profitability over the next cycle of investment and competition will be key.

DTT Takes Shape

ABS-CBN, which invested in DTT technology earlier than its competitors, has started to leverage this first-mover advantage, launching services branded TVplus last month in Manila.

The immediate goal is strengthening reception of ABS-CBN's flagship Channel 2 free-to-air network in the Mega Manila and Central Luzon areas, boosting ad sales in the process, while developing a dual revenue stream business with sub fees longer-term, as more channels and content partners come on board.

The broadcaster has already moved more than 200,000 TVplus set-tops, and is targeting sales of more than 1 million boxes by the end of 2015.

TVplus transmits ABS-CBN’s two core free TV channels plus four additional offerings taking in news, movies (largely local), kids and education.

Of the ~US$190 million in capEx this year, more than US$90 million will go towards free-to-air distribution and new studios, compared to under US$60 million last year.

The company is also doubling its capEx on content rights to more than US$26 million for 2015, while spending US$70 million to expand its pay-TV & broadband business under SkyCable.

SkyCable’s broadband business is growing rapidly with 100,000 subs at end-2014 (+24%), boosting revenues by 37% in 2014.

SkyCable ended 2014 with about 775,000 pay-TV customers. It has recently moved to launch VOD services and slimmer channel packs bundled with broadband.

Pay-TV revenue growth trended at around 8% last year. Both DTH and DTT distribution are likely to come into play, as SkyCable looks to cover more TV homes in the country.

Transition

Overall, ABS-CBN is in the midst of transition, as company management seek to ramp up consumer payments and subscription revenue.

Longer-term, this means: theme parks, more movies and stronger theatrical revenues; a better broadband business; subscription-based OTT plays, both at home and abroad; along with more robust international content and channel returns.

Consumer sales accounted for more than 43% of ABS-CBN’s turnover in 2014, with the remaining 57% from advertising, driven by the analog free TV business.

Free TV ad dollars will continue to grow incrementally in 2015, boosted by upcoming elections next year.

The future, however, appears to be geared towards more hits and winning franchises, anchored to stronger digital and broadband distribution.