We initiate coverage on Hum Network Limited (HUMNL) with a Dec’22 target price of PKR 17.5/share, offering a noteworthy upside of 114% from current levels. Our liking for the stock is hinged upon i) solid brand presence in the domestic entertainment business, ii) consistent growth in the company’s digital audience whereby earnings are USD denominated, iii) augmented income from the company’s news channel in lieu of revised advertisement rates post improvement in distribution and ranking, and iv) attractive valuations amongst regional and global peers.
We project the company to generate a 3-yr forward earnings CAGR of 40%. Hence, we recommend a strong ‘BUY’ on the scrip. Currently the stock is trading at an attractive FY23F / FY24F PER of 3.6x / 3.1x.
Hum TV: “Leadership commitment to entertain”
Over the years, Hum Network’s flagship TV channel – Hum TV – has acclimated itself with the times. As per Aurora, Hum TV remains the third largest channel in terms of ranking and market share in the country, whereby some its shows have broken many TRP records in the past few years. Moreover, initiatives such as award shows in foreign countries have also warmed up overseas Asian communities to its content. As a result, we forecast advertisement revenue from the channel to grow at a 3-yr forward CAGR of 13% by FY24.
Hum News: Rising from the ashes
HUMNL launched its news channel in 2018, where the first few years remained particularly tough; the company incurred significant distribution expenses and the government drastically cut campaign rates of the public sector on Television. Moreover, the PKR lost 30% against the USD in 2018-19 and coupled with the advent of COVID in 2020, advertisement revenue of several large organizations faced an axe. Albeit, the company’s efforts to improve its outreach has finally borne fruit. Ranking of the channel has jumped up from 16 in 2018 to number 5 at present, rendering it to be a Tier 1 channel, which has significantly improved its cost per rating point (CPRP). We project advertisement revenue from Hum News to grow at a 3-yr forward CAGR of 75%.
A new wave of Digital Media and Internet Penetration
Similar to its television presence, Hum TV has the third largest drama channel account on YouTube, with over 20mn subscribers. This has altogether opened up a new revenue stream for the company. HUMNL generates USD denominated income from its social media monetization based on three factors: i. Number of subscribers, ii. Views per video, and iii. Duration of views. Higher views can then attract advertisement revenue. Given the pace of internet penetration in the country and the growth in subscribers, we forecast the company’s subscription income to achieve a 3-yr forward CAGR of 41%.
Relatively well priced
With HUMNL projected to post earnings of PKR 2.3/share and 2.7/share in FY23 and FY24, the stock currently trades at a cheap PER of 3.6x and 3.1x, respectively. The scrip also appears attractive compared to other global peers which trade at a PER 19.0x, hence offering a discount of 81% on forward earnings. The stock also offers an alluring dividend yield of 15% (FY23).
Courtesy- AHL Research