GMA Network, Inc.

FRI 18 MAY 2018

1Q18 earnings drop 49.9% y/y on lower

revenues, below COL forecast
1Q18 earnings drop 49.9% y/y on lower revenues. GMA7’s 1Q18 net income reached
Php419Mil, down 49.9% y/y, mainly due to lower revenues. 1Q18 revenues dropped 13.2% y/y
to Php3.3Bil, as a result of lower ad spending by major advertisers. Results missed COL estimates
BUY
accounting for just 14.8% of our full year forecast as revenues also disappointed, accounting for TICKER: GMA7
just 20.1% of our full year forecast. (see exhibit 1)
FAIR VALUE: 8.50
1Q18 revenues down 13.2% y/y on lower airtime revenues. 1Q18 revenues dropped 13.2% CURRENT PRICE: 5.60
y/y to Php3.3Bil mainly due to lower airtime revenues. Airtime revenues reached Php2.9Bil, down UPSIDE: 51.79
15.4% y/y. This was despite higher ad rates as less ad placements were registered during the
quarter. According to management, businesses spent less on advertising in response to higher
costs brought about by the implementation of the TRAIN law. Nevertheless, GMA7 noted that SHARE PRICE MOVEMENT
they are seeing some recovery starting April and that they expect to see better volume in 2Q18.
Meanwhile, non- airtime revenues grew 7.0% y/y to Php403Mil, driven by GMA New Media, 110

which is the company’s subsidiary engaged in providing converging technology. (see exhibit 2)
100
1Q18 opex up 4.5% y/y on higher personnel cost. 1Q18 total operating expenses (opex)
grew 4.5% y/y to Php2.7Bil mainly due to higher general and administrative expenses (gaex). 90
Specifically, gaex grew 11.5% y/y to Php1.2Bil due to higher personnel costs as a result of annual
salary adjustments of both rank and file and confidential employees. Meanwhile, production
80
costs were flat at Php1.5Bil as the increase in rentals and outside services, and talent fees was
offset by the decline in other program expenses. Moving forward, we expect production costs to
remain flattish as management noted that upcoming programs are less expensive to produce. 70
18-Feb-18 18-Mar-18 18-Apr-18 18-May-18
We also expect the increase in gaex, specifically personnel costs, to normalize in the following
quarters since 2018 is not a Collective Bargaining Agreement (CBA) year. Note that 2017 is a high GMA7 PSEi
base for personnel cost since it was a CBA year.
ABSOLUTE PERFORMANCE
Estimates under review. We will be reviewing our estimates on GMA7 in light of the weaker-
than-expected 1Q18 results. We currently have a BUY rating on GMA7 and FV estimate of Php8.5/ 1M 3M YTD
sh. GMA7 -4.11 -8.94 -4.11
PSEi -1.27 -10.66 -10.10
FORECAST SUMMARY
in PhpMil 2014 2015 2016 2017E 2018E 2019E
Revenues 11,983 13,727 16,673 15,248 16,277 17,525
% change y/y (7.5) 14.6 21.5 (8.5) 6.7 7.7 MARKET DATA
EBIT 1,478 3,063 5,201 3,415 4,042 4,583
Market Cap 18,821.86Mil
% change y/y (38.8) 107.2 69.8 (34.3) 18.4 13.4
EBIT margin (%) 0.1 0.2 0.3 0.2 0.2 0.3 Outstanding Shares 3,361.05Mil
EBITDA 2,925 4,647 6,803 4,866 5,548 6,094 52 Wk Range 5.50 - 6.55
% change y/y (21.3) 58.9 46.4 (28.5) 14.0 9.8 3Mo Ave Daily T/O 3.11Mil
EBITDA margin (%) 0.2 0.3 0.4 0.3 0.3 0.3
Net income 1,005 2,115 3,626 2,391 2,841 3,224
% change y/y (39.7) 110.5 71.5 (34.1) 18.8 13.5
Net margin (%) 8.4 15.4 21.7 15.7 17.5 18.4
EPS (Cents) 0.21 0.44 0.75 0.49 0.58 0.66
% change y/y (39.7) 111.1 70.7 (34.1) 18.2 13.5

RELATIVE VALUE
P/E (X) 27.1 12.8 7.5 11.4 9.6 8.5 FRANCES ROLFA NICOLAS
P/BV (X) 3.3 3.0 2.6 2.9 2.7 2.5
ROE (%) 11.8 24.6 37.3 24.0 28.8 30.6
RESEARCH ANALYST
Dividend yield (%) 4.8 4.5 13.0 12.0 7.9 9.3 rolfa.nicolas@colfinancial.com
so urce: GM A 7, COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
 EARNINGS ANALYSIS I GMA7: 1Q18 EARNINGS DROP 49.9% Y/Y ON LOWER REVENUES, BELOW COL FORECAST

FRI 18 MAY 2018

Exhibit 1: Results Summary

in PhpMil 1Q17 1Q18 %Change % of COL estimate

Revenues 3,766 3,271 (13.2) 20.1
Operating Income 1,174 563 (52.0) 14.4
Operating margin (%) 31.2 17.2 - -
EBITDA 1,545 972 (37.1) 17.5
EBITDA margin (%) 41.0 29.7 - -
Net income 837 419 (49.9) 14.8
Core margin (%) 22.2 12.8 - -
source: GMA7, COL estimates, Bloomberg

Exhibit 2: Revenue Breakdown

in PhpMil 1Q17 1Q18 %Change

Airtime 3,390 2,868 (15.4)
Non-airtime 376 403 7.0
Total Revenues 3,766 3,271 (13.1)
source: GMA7, COL estimates

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I GMA7: 1Q18 EARNINGS DROP 49.9% Y/Y ON LOWER REVENUES, BELOW COL FORECAST

FRI 18 MAY 2018

GMA Network, Inc. INCOME STATEMENT (IN PHPMIL)

(GMA7) Revenues
FY14
11,983
FY15
13,727
FY16
16,673
FY17E
15,248
FY18E
16,277
FY19E
17,525
% Growth 14.6% 21.5% -8.5% 6.7% 7.7%
COMPANY BACKGROUND Gross Profit 6,431 7,885 10,128 8,652 9,357 10,261
GMA Network, Inc. (GMA7) is one of the % Growth 22.6% 28.5% -14.6% 8.2% 9.7%
EBITDA 2,925 4,647 6,778 4,866 5,548 6,094
two major players in the Philippine media
% Growth 58.9% 45.8% -28.2% 14.0% 9.8%
industry. The company is principally Operating Profit 1,409.0 2,982 5,076 3,290 3,918 4,458
enagaged in television and radio % Growth 111.6% 70.2% -35.2% 19.1% 13.8%
broadcasting. GMA7 is also involved in Interest Expense (36) (41) (24) (16) (13) (13)
Other Income/Expense 85 95 108 159 153 160
media-related services such as movie
Pretax Income 1,457 3,036 5,208 3,433 4,058 4,606
making, sets and props construction, Tax Expense (448) (910) (1,561) (1,030) (1,217) (1,382)
film syndication, music and video Net Income 1,010 2,126 3,647 2,403 2,841 3,224
recording, new media, online gaming, % Growth 110.6% 71.5% -34.1% 18.2% 13.5%
EPS 0.2 0.4 0.8 0.5 0.6 0.7
post production services and marketing,
% Growth 111.1% 70.7% -34.1% 18.2% 13.5%
which complement its core business.
BALANCE SHEET (IN PHPMIL)
FY14 FY15 FY16 FY17E FY18E FY19E
REVENUE BREAKDOWN Cash & Equivalents 1,599 2,160 3,419 2,851 3,557 4,093
Trade Receivables 4,638 4,384 5,270 4,804 5,128 5,522
Inventories - - - - - -
9%
Other Current Assets 2,010 2,262 1,894 2,160 2,157 2,168
PPE 5,174 4,930 4,582 4,392 4,186 4,070
Other Non-Current Assets 600 679 893 893 893 893
Television and radio
Total Assets 14,020 14,416 16,059 15,101 15,922 16,745
airtime
Accounts Payable 1,931 2,191 2,442 2,349 2,465 2,587
Production
ST Debts and Others 2,223 1,153 646 511 511 511
Other Current Liabilities 188 591 586 716 733 754
LT Debts - - - - - -
Other Non-Current Liabilities 1,445 1,398 1,929 1,929 1,929 1,929
91% Total Liabilities 5,787 5,333 5,603 5,506 5,637 5,781
Total Equity 8,233 9,082 10,456 9,595 10,284 10,964
Total Liabilities & Equity 14,020 14,416 16,059 15,101 15,922 16,745
Television and radio BVPS 1.7 1.9 2.1 2.0 2.1 2.2
airtime
Production and Others CASHFLOW STATEMENT (IN PHPMIL)
FY14 FY15 FY16 FY17E FY18E FY19E
Net Income 1,457 3,036 5,208 3,433 4,058 4,606
Depreciation & Amortization 777 800 724 669 701 646
% Other Non-Cash Exp (Gains) 209 287 (340) (287) (452) (556)
Interest Expense (Income) 21 27 (7) - - -
Decrease (Increase) in Working Cap (1,801) (688) (1,469) (504) (954) (1,086)
Operating Cash Flow 662 3,462 4,115 3,311 3,353 3,609
Capex (564) (553) (444) (479) (495) (529)
Other Investments 11 13 39 - - -
Investing Cash Flow (553) (540) (405) (479) (495) (529)
Proceeds (Payment) Debts 1,085 (1,125) (518) (135) - -
Payment of Cash Dividends (1,311) (1,224) (1,955) (3,264) (2,152) (2,544)
Others (35) (43) (18) - - -
Financing Cash Flow (262) (2,392) (2,491) (3,399) (2,152) (2,544)
Change in Cash (153) 531 1,219 (568) 706 536

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I GMA7: 1Q18 EARNINGS DROP 49.9% Y/Y ON LOWER REVENUES, BELOW COL FORECAST

FRI 18 MAY 2018

INVESTMENT THESIS: KEY RATIOS

FY14 FY15 FY16 FY17E FY18E FY19E
Positive economic outlook to boost
GPM (%) 54% 57% 61% 57% 58% 59%
advertising revenues
EBITDA Margin (%) 24% 34% 41% 32% 34% 35%
We expect advertising revenues to remain OPM (%) 12% 22% 30% 22% 24% 25%
strong driven by the positive outlook on NPM (%) 8% 16% 22% 16% 18% 18%
the economy. Currently, the main drivers for Times Interest Earned (X) 41 76 (256) 211 316 359
economic growth (government spending and Current Ratio (X) 1.9 2.2 2.9 2.7 2.9 3.1
OFW remittances) are expected to continue Net D/E Ratio (X) 0.10 (0.10) (0.30) (0.20) (0.30) (0.30)
Days Receivable 141.3 116.6 105.7 115.0 115.0 115.0
their uptrend. The BSP expects government
Days Inventory - - - - - -
spending to grow following the government’s
Days Payable 127.0 136.9 129.2 130.0 130.0 130.0
aggressive plans in developing public Asset T/O (%) 90% 100% 110% 100% 100% 110%
infrastructure, while OFW remittances are ROAE (%) 10% 20% 40% 20% 30% 30%
projected to grow by 4% for 2017. We believe
that GMA7 is in a prime position to capitalize
on these industry trends.

Efficient cost management

GMA7 has consistently kept costs and
expenses at manageable levels, usually
growing by only a single digit percentage, and
a slower pace than recurring revenues. This in
turn lead to improvement in the company’s
bottom-line.

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I GMA7: 1Q18 EARNINGS DROP 49.9% Y/Y ON LOWER REVENUES, BELOW COL FORECAST

FRI 18 MAY 2018

Valuation RELATIVE VALUATION

P/E EPS Growth
Methodology 2017E 2018E 2017E 2018E
MEDIA PRIMA BHD 41.5 16.0 -132.0% 159.0%
MEDIA NUSANTARA CITRA TBK PT 13.1 11.5 15.0% 14.0%
TV TODAY NETWORK LTD 11.8 20.3 27.0% 15.0%
SUN TV NETWORK LTD 25.4 21.3 12.0% 20.0%
SKY NETWORK TELEVISION LTD 11.4 11.4 -25.0% 0.0%
BEC WORLD PUBLIC CO LTD 30.5 25.4 -14.0% 20.0%
ABS-CBN CORPORATION 11.9 10.5 -22.0% 13.0%
GMA NETWORK INC 12.5 10.5 -34.0% 19.0%
Industry Ave 19.7 15.9 -21.0% 32.0%
Industry Median 12.8 13.8 -18.0% 17.0%

VALUATION ASSUMPTIONS

For DCF
Risk Premium 5.0%
Risk Free Rate 5.5%
Beta 0.90
Cost of Equity 10.0%
Cost of Debt 0.0%
Tax Rate 30.0%
WACC 10.0%
Terminal Growth Rate 2.0%

PV (FY17E-FYXXE) 11,028
PV of Terminal Value 27,273
Enterprise Value 38,301
Less: Net Debt 2,851
Add: Other Investments 0
Equity Value 41,152
O/S 4,861
FV Estimate 8.50

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I GMA7: 1Q18 EARNINGS DROP 49.9% Y/Y ON LOWER REVENUES, BELOW COL FORECAST

FRI 18 MAY 2018

IMPORTANT RATING DEFINITIONS

BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the next six to
12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

ANDY DELA CRUZ JOHN MARTIN LUCIANO FRANCES ROLFA NICOLAS

SENIOR RESEARCH ANALYST SENIOR RESEARCH ANALYST RESEARCH ANALYST
andy.delacruz@colfinancial.com john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com

JUSTIN RICHMOND CHENG ADRIAN ALEXANDER YU

RESEARCH ANALYST RESEARCH ANALYST
justin.cheng@colfinancial.com adrian.yu@colfinancial.com

COL FINANCIAL GROUP, INC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 6