- We re-iterate our BUY recommendation on Media Prima Bhd (MPrima), with an unchanged fair value of RM2.90/share (underreview), based on our DCF valuation. Our fair value is currently under review, pending a meeting with management on 20 May 2013.

- The stock hit a historical high yesterday at RM2.62 (+14%), post general election. It closed at RM2.30 on Friday.

- MPrima recorded a net profit of RM27mil in 1QFY13 (+31% YoY, -63% QoQ), constituting 13% each of our and consensus estimates. Due to adex seasonality effect, 1Q is the slowest, given advertisers’ wait-and-see approach. As such, the results are deemed to be within expectations.

- The 1QFY13’s underlying strength was attributed to improvements in adex performance (+11% vs. -6% YoY previously) across all platforms. Industry adex grew by 19%. Net adex revenue for television, in particular, grew 15% from a low base in FY12 and was lifted by increased spending by nontraditional advertisers.

- Higher sponsorship by advertisers and campaigns by the government agencies in relation to the general election are believed to have further boosted adex revenue for television and radio (+4% YoY). Print media (+6% YoY) continued to be well driven by the buoyant Malay market, supported by Harian Metro.

- Meanwhile, EBITDA registered a positive growth of 17% underpinned by a slower increase in direct cost, overheads and higher interest income.

- On the bright side, FY13F marks a recovery in adex, in our view, given the complete removal of the election overhang post the general election. 2HFY13F adex is poised for a recovery as advertisers’ confidence is restored. Industry adex is projected to grow by 5%-8% this year vs. 6% in FY12.

- More importantly, improved adex sentiment in 2HFY13 will be further boosted by a seasonal trend – massive sales period and festive seasons towards the year-end, hence, prompting more aggressive advertising compared to 1HFY13. Note that advertisers’ budgets tend to be exhausted towards the year-end.

- No dividend was declared for the quarter. A potential upside in dividend is in the making. MPrima is in the midst of reviewing the lower range of the group’s dividend policy (25%-75%). We understand this is likely to materialise, earliest in 3Q.

- Strong net cash position of RM41mil as at end-1QFY13F further supports MPrima’s attractive dividend yields of >5% (based on an assumed dividend payout of 67%). Foreign shareholding as at end-March FY13 stood at 34%.

- The stock is currently trading at 13x PE FY13F, below its 5-year historical average PE of 20x.

Source: AmeSecurities