- We maintain our HOLD recommendation on Media Prima (MPR) with a lower fair value of RM2.05/share (vs. RM2.55/share previously), based on our DCF valuation.

- We cut MPR’s FY14F-FY16F earnings by 20%-22% as MPR’s 9MFY14’s earnings of RM105mil came in below expectations at only 53% of our previous FY14F earnings and 57% of consensus.

- As expected, MPR declared a second interim dividend of 3 sen/share. In tandem with our new earnings estimate for FY14F, we have lowered our assumption for FY14F DPS from 14 sen to 11 sen. This equates to a 78% payout, which is within MPR’s policy of 60%-80%.

- The group’s 3QFY14 net profit increased by 17% QoQ despite a 3% decrease in revenue, due to improvement in margins for its TV and outdoor media division vs. 2QFY14. However this was partially offset by margins decline for its radio and print segments.

- However, on a YoY basis, 3QFY14 earnings fell by 34%, in tandem with a revenue decline of 14% YoY. Overall adex revenue contracted by 11% YoY. This is shown in a decline of revenue across all its business segments.

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

- Furthermore, the softer revenue stems from a higher base in the previous year due to the General Election campaign expenditures.

- Overall, while we are more positive on MPR’s longer-term fundamentals, we believe near-term earnings would be muted. This comes as the recent fuel subsidy cut and the impending implementation of the GST that would likely dampen consumer sentiments further.

- 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. It will also continue to invest in platform agnostic content, to be packaged together with its 70,000 hours worth of existing ones and sold to external operators. Positively, MPR has started selling its content to overseas clients.

- The stock trades at 15x PE for FY15F, compared with Star’s 12x and MCIL’s 10x.

Source: AmeSecurities