- We maintain our HOLD recommendation on Media Prima (MPR) with a lower fair value of RM2.55/share, based on our DCF valuation, following a 2%-5% cut in our FY14F-FY16F earnings forecasts.

-  MPR reported a 2QFY14 earnings of RM35.8mil (+33% QoQ, -40% YoY), bringing first half earnings to RM62.8mil (-28% YoY). This accounts for 30% our previous estimates, but only 28% of consensus estimates. We deem this to be below expectations.

-  Despite the second half of the year being seasonally stronger as advertisers use up their budgets towards the year-end, previous trends indicate that 1H earnings usually account for 34%-40% of full year earnings.

-  As expected, MPR declared a first interim dividend of 3 sen/share.

-  1HFY14 earnings fell by 28% YoY, in tandem with a revenue decline of 11% YoY. Overall adex revenue declined by 9% YoY. This is shown in a decline of revenue across its major segments (i.e. television, print and outdoor), while its radio, digital and content segments charted marginal revenue growth.

-  The weaker results came amid the challenging environment due to weak consumer sentiments. This was exacerbated by the MH370 and MH17 disasters, where MPR needed to cancel/reschedule certain programmes.

-  Furthermore, we believe the softer revenue was also a result of a higher base in the previous year stemming due to the General Election campaign expenditures.

-  Going forward, MPR intends to defend its earnings by focusing on non-traditional advertisers to reduce its dependency on the current top advertisers, while managing its costs to maintain operating margins.

-  Overall, while we are positive on MPR’s longer-term fundamentals, we believe near-term earnings would be muted. The expected adex contributions from the major sporting events this year will not likely make up for the weak sentiment, as the expectation of the next round of fuel subsidy cut around the corner would likely dampen consumer sentiments further.

-  MPR reiterates its commitments of a 60%-80% dividend payout ratio. We currently assume a flat payout of 14 sen/share for FY14F, translating into a yield of 5.8%. This should provide some support to the share price.

-  The stock trades at 13x PE for FY14F.

Source: AmeSecurities