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Mark Yu
Mark Yu
Articles (375)  | Author's Website |

ABS-CBN May Be Worth Your Investment

The Philippine media broadcasting leader offers some value

In mid-August, Philippine giant media broadcaster ABS-CBN (PHS:ABS) disclosed its results for the quarter that ended June 30. The company grew its top line by 19.79% to 11.19 billion Phlippine pesos ($240.8 million in U.S. currency) while its profits grew by 115% to 1.35 billion pesos when compared year on year.

(Read Quarterly Report Here: ABS CBN 17-Q; Quarterly Report)

ABS-CBN

ABS-CBN, known formerly as Alto Broadcasting System – Chronicle Broadcasting Network, started operations in 1946. The company began engaging in media television (TV) in 1953. Currently, the company has several wholly and primarily owned local and foreign subsidiaries* that carry its media presence worldwide.

(ABS-CBN company and parent/subsidiaries, Annual Filing)

In 2015, Lopez Incorporated owned 56.5% (480.9 million common shares) of ABS-CBN. Lopez Incorporated also owned 98.71% of total preferred shares outstanding by the media company. ABS-CBN Holdings, meanwhile, owned 38.6% (328 million common shares) of the media company.

ABS-CBN Holdings Corporation is also owned 50% by Lopez Incorporated. The other half (50%) is owned by Oscar M. Lopez, Manuel M. Lopez, Presentacion L. Psinakis and Eugenio L. Lopez III.

As a result, Lopez Incorporated has 79.32% voting rights in ABS-CBN after owning most of its common and preferred shares including an investment from a namesake holding company.

Read more on Lopez Group of Companies on this link: Lopez Group of Companies.

(Market/Audience Share in Television by ABS CBN using Kantar Media, Company Website)

As of 2015, ABS-CBN has the most market share in terms of TV viewers with 44% during the day and 50% at night. As a result, ABS-CBN draws a lot of advertisers leading to its growing revenue.

The media company had a five-year sales and profit growth average of 6.6% and -1.6%. ABS-CBN seemed to have difficulties growing its profits in fiscal years 2011 and 2012 but has grown steadily since.

ABS-CBN earns its money through advertising and consumer sales. In 2015, the media company earned 55.55%, or 21.27 billion pesos, in advertising sales, and the rest, or 17 billion pesos, in consumer sales. ABS-CBN reports its sales through three main business segments. These are TV and Radio, Pay TV Networks and New Business.

TV and radio

(TV and Radio, Annual Filing)

TV and Radio business segment can further be dissected into five subsegments, which were Free-to-Air, Global, Films and Music, Narrowcast and Others.

Free-to-Air

The Free-to-Air (FA) segment has ABS-CBN’s Channel 2 among other channels as shown in the image above. The FA segment has 11 commercial television stations. Further, FA broadcasts over the Philippines’ Mega Manila*.

(ABS-CBN’s Born For You TV show, Company Website)

The FA segment contributed most (51.4%), or 19.68 billion pesos, to ABS-CBN’s total sales in 2015.

Global

As of Dec. 31, 2015, ABS-CBN Global TV reached more than 3 million people in over 40 countries across four continents worldwide; 53.1% of Global viewers were in North America while 40.5% were in the Middle East.

ABS-CBN’s Global services is available in all territories where there is a significant market of overseas Filipinos such as the U.S., Middle East, Europe, Australia, Canada and Asia Pacific. The company distributes its shows overseas through Direct to Home (DTH), cable, Internet Protocol Television (IPTV), mobile and online through The Filipino Channel (TFC). Additionally, the Global segment includes international film distribution, remittance, retail, sponsorships and events

The Global segment of ABS-CBN’s TV and Radio business delivered 5.8% growth to 5.98 billion pesos in 2015. This segment earns most from its subscription services. The subscription services contributed 9.42% or 3.6 billion pesos to ABS-CBN’s total sales last year.

Radio

ABS-CBN also has two radio stations operating in Mega Manila. These are radio station DZMM, on the AM bandwidth, and radio station 101.9, in the FM bandwidth.

Although the main difference between the AM and FM bandwidths are its assigned frequencies. In the Philippines, radio stations using AM bandwidths mostly produce news to broadcasts; those in FM bandwidths, meanwhile, are for music or entertainment broadcasts. ABS-CBN also has other provincial radio stations, with three on the AM bandwidth and 16 others on the FM bandwidth.

Overall, ABS-CBN had the most growth in its TV and Radio business segment with 13% to 31 billion pesos.

Pay TV networks

ABS-CBN also provides its pay TV services. Pay TV consists of Sky Cable, similar to Time Warner’s (NYSE:TWX) HBO or Disney’s (NYSE:DIS) ESPN in the U.S.

In addition to the Sky Cable, ABS-CBN’s Pay TV also include broadband and Internet phone services. Also the segment carries with it its online on-demand service, iWant TV.

(iWant TV, Company Website)

Pay TV Network grew 4.1% last year and had 8 billion pesos in sales.

Interestingly, if I were to add TV and Radio sales with Pay TV Network sales in 2015, I would arrive at a total of 39.14 billion pesos. This is 2.2% above ABS-CBN’s reported consolidated sales of 38.28 billion pesos, still excluding its New Business segment for that fiscal year.

(Read ABS-CBN’s Management’s Discussion & Analysis of Financial Condition and Results of Operations from page 58 onward here: ABS-CBN 2015 Annual Filing)

New business

(New Business, Annual Filing)

Included in ABS-CBN’s New Business are wireless telecommunications business, digital terrestrial television (DTT), theme parks and home shopping.

In theme parks, ABS-CBN franchised KidZania Manila, which is located in Bonifacio Global City, Philippines. KidZania, in itself, has an interesting concept. According to ABS-CBN’s filing, KidZania provides children and their parents a safe, unique and realistic educational environment that allows kids between the ages of 4 and 12 to do what comes naturally to them: role playing by mimicking traditionally adult activities.

KidZania Manila started operations in August 2015. This is the first theme park venture in which ABS-CBN has engaged. The theme park generated 239 million pesos in sales in the first five months of operations.

Here is a KidZania video:

(KidZania Video, YouTube)

Cash, debt and book value

As of June 30, ABS-CBN’s unaudited financial report revealed the company had a total cash of 14.3 billion pesos. The company also had 21.26 billion pesos in total debt, resulting into a debt-equity ratio of 0.73. ABS-CBN also had a book value amounting to 29.9 billion pesos with 40% or 11.88 billion pesos in goodwill and intangibles.

Cash flow

(ABS-CBN Cash Flow in FY 2015, Annual Filing)

In 2015, ABS-CBN showed a strong 56.61% growth in its cash flow from operations to 7.57 billion pesos. In comparison, the 2015 figure was still short of roughly 500 million pesos when compared to its 2013 operational performance of 8 billion pesos. ABS-CBN also had notably increased its payables by 70.53% to 1.68 billion pesos, its largest for the past three years.

The company spent 4.74 billion pesos in capital expenditures leaving it with 2.82 billion pesos in free cash flow. In addition to its capital expenditures, the company also allocated 3.55 billion pesos in other short-term and intangible investments.

ABS-CBN took in some 300 million pesos in debt but also reduced its debt and interest by 920 million pesos. The company also handed out 493.7 million pesos in dividends in 2015.

Valuations

According to Bloomberg data, ABS-CBN has a trailing 12-month (ttm) price-earnings (PE) ratio of 11.6 times and price-sales (PS) ratio of 1. Using its recent unaudited book value, the media company has a price-to-book (PB) value of 1.43 times. Also, the company has a ttm dividend yield of 1.49%.

In comparison, the iShares MSCI Philippines ETF (EPHE) has a ttm PE ratio of 22 times and PB ratio of 2.75 times. It is comprised of broad-based index composed of Philippine equities and had $331.72 million in assets as of Aug. 22.

Another close peer, GMA Network (PHS:GMA7), trades at just 0.43 times PE ratio and 0.12 times its sales.

Conclusion

ABS-CBN exemplifies a media company being run by a major shareholder, Lopez Incorporated. The media company also is responsible for distributing news and entertainment content throughout the Philippines.

(ABS-CBN share price, Bloomberg)

In review, the company has a great lead over its next and nearest competitor, GMA Network, in terms of audience and market share. In addition to its other media business segments, ABS-CBN also may have struck another gold mine as it had initiated a new venture in the theme park business with its KidZania franchise. As it turned out, the theme park business appeared to be a fast-growing one as it was able to earn a quarter of a billion pesos in its first few months of operation.

Despite its small dividend yield, ABS-CBN still trades at some discount compared to the broader Philippine market and trades at the low end of its 52-week range. This may lead to speculation that with continued growth in its operations ABS-CBN may once again reach 60 to 65 pesos per share, or a PE of 14.5 times.

One concern for ABS-CBN is its franchise to operate and maintain its TV and radio broadcasting stations will expire in 2020. The franchise renewal would be subject to the approval of the Philippine Congress, which would be under the newly elected Philippine President Rodrigo Duterte.

As observed, the Philippines' president and its Congress had been "unhappy" about ABS-CBN’s coverage of his campaign.

The media company, along with GMA Network, released a controversial advertisement just days before the election that featured children attacking the suitability of the then-leading presidential candidate.

So far, investors already observed how the new administration is relentless to tax-avoiding business practices and also to nature-harming businesses, such as the country’s mining industry.

(Read: Philweb Philippines: A Company in Trouble)

(Read: Mining Is a Tough Business in Southeast Asia)

*The complete list of subsidiaries is located in pages 4 and 5 of its recent annual report.

*1 U.S. dollar is equal to 46.28 Philippine pesos as of Aug. 26.

*Mega Manila: term used for the megalopolis in the Philippine regions of Central Luzon, Calabarzon, Mimaropa and Metro Manila.

Manila is the city capital of the Philippines. It is the second most populous city in the Philippines in 2015.

Disclosure: I do not have shares in any of the companies mentioned in this article.

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About the author:

Mark Yu
A doctor in physical therapy (DPT) with a passion for finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

Attempts to dissect company filings per day. Dislikes goodwill and intangible assets.

For quicker reading--jump ahead to an article's conclusion.

One company (review) a day keeps the speculation (hopefully) away.

Would typically invest $500 to $3000 of own money per buy recommendation.

"The only source of knowledge is experience"

"I have no special talent. I am only passionately curious." Albert Einstein

"To strive, to seek, to find, and not to yield." Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." Warren Buffett

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