BROKERAGE Merrill Lynch has rated shares in Television Broadcasts (TVB) as a good long-term buy, saying it is undervalued and should see a strong recovery later in the year. TVB is the larger of two local broadcasters and operates two channels: TVB Jade in Chinese and TVB Pearl in English. It also makes programmes and leases film studios. An evaluation of cash flow suggests TVB should have a theoretical stock price of $38.55, 30 per cent higher than its current level. The performance may be dull in the medium term however, as final 1995 results are expected to be poor. But the brokerage said a strong earnings rebound is expected in 1996. Contributions from Taiwan and other overseas operations should boost profit and cash significantly this year and next, contributing more than 20 per cent of revenue in 1996. A pre-emptive bidding system for advertising space is expected to boost income this year and the Olympics should also spur demand for advertising air time. The company remains resilient to existing and new competition in the Hong Kong television market as its unrivalled Chinese programming and scheduling keep it in the forefront with viewers. Competition is not expected to shake its market dominance for at least two years. New entrants like Wharf Cable are making slow progress and STAR Television's programming has been disappointing.