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Summary of Broker’s Recommendation
|Company Name||GMA Network Inc.|
|Broker||Regina Capital Development Corp.|
|Opinion Issued on||9 May 2023|
|1-Year Target Price||PHP 14.11|
GMA Network, Inc. (GMA7)’s Net Income (NI) has fallen primarily due to higher production costs, but remains as the market leader in the media sector in the Philippines. Our estimates on GMA7 have been adjusted following its full-year performance, which showed that production costs have affected the company’s NI bringing it below to lower levels which has been also expected as the election season ends.
As a result, we now project GMA7’s 2023 bottomline to grow at a CAGR (2020-2023E) of -6.43%. Our projections would bring GMA7’s NI figure for 2023E to around P4.6 Billion, which is down 15.62% year-on-year (y/y) below its 2022 NI of P5.5 billion.
Because of these factors, we have adjusted our target price on GMA7 to P14.11 per share on a HOLD recommendation.
Analysis and Opinion
Back to 2020 levels
After the election season, it seems that GMA7’s profitability has returned to normalcy as advertising revenue has lessened year-on-year (y/y) in the latter part of the year to P20.24 billion, with the 2022 political campaign ending, coupled with higher production costs in adapting international shows and participating in expos around the world. Because of these factors, GMA7’s NI was greatly affected to end lower at P5.46 billion y/y. However, we can expect that these developments will help to contribute to GMA7’s revenues in the long run.
The effects of higher production costs started to be felt during the 3rd quarter (3Q) of 2022, where net earnings fell by -53% to P1.10 billion q/q due to spending more on production and general expenses. Political advertisements for the national elections were also phased out as the election season ended, leading to less advertising revenue for the company. While this is the case, GMA7 has been trying to expand by allocating bigger budgets and hosting events internationally. While we cannot expect GMA7’s NI growth to exceed its 2021 NI growth, we can expect GMA7 to have a NI growth y/y in line with 2020 and 2022 due to higher production costs but could potentially translate to more extensive programs that could attract more viewers and advertising deals.
What’s dragging the topline down?
As expected, GMA7’s revenues have started to fall after the election season ended. The 2022 topline has decreased by by O785 million y/y compared to 2021, where political campaigns have been very aggressive. Programs such as the Eleksyon 2022 special and other election-related shows/newscasts garnered a 20.8% people net reach which used to contribute largely to the company’s topline of 22.45 billion in 2022.
Another contributor to revenues falling in 4Q 2022 was production costs growing to +53% y/y on the back of talent fees and personnel costs rising to +74% y/y due to new talents, more extensive programs, and higher fees. Also, 2H 2022 saw the pullout of political advertisements as the election ended. These factors dragged the firm’s topline to -4% y/y, where 2021 posted revenues of P22.45 billion while 2022 posted P21.56 billion. As for the proportions of its revenues, advertising has 93.82%, subscription has 3.59%, production has 0.85%, distribution & content has 0.16%, and consumer sales has 1.58%.
Revenue streams have contracted
Revenue streams that have contracted include advertising going down to -3.73%, subscription to -1.48%, distribution & content to -18.45%, and consumer sales to -35.4%. An outlier in the revenue stream would be production revenues growing to +133% y/y in 2022 compared to 2021. Data from the segment breakdown of its revenues showed that everything has declined except production, which the media giant is now heavily focusing on.
As 2023 progresses, we can expect GMA7’s revenue streams to continue to go in this direction. Without political advertisements, we can still expect companies to pick GMA7 as its top pick for television advertisements as it remains the market leader with the broadest audience reach. GMA7 is also continuing to expand its programs and brand recognition by producing bigger shows and building its international presence through expos and events.
We forecast GMA7 to still be the top pick for television advertisements, despite the production and general administrative costs the company faces in the near term.
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