- We maintain our HOLD rating on Media Prima (MPR) with a lower fair value of RM1.70/share (vs. RM1.80/share previously), based on a 20% discount to our DCF valuation. We have cut our earnings estimates in FY15F-FY17F by 5%- 7%, to account for our lower adex assumptions.

- MPR reported a 1QFY15 earnings of RM19.4mil (-62% QoQ, -30% YoY), constituting only 12% of both our and market estimates. Despite the first quarter usually being the weakest, MPR’s results were lower than expected.

- MPR’s earnings fall in 1QFY15 is largely attributed to its decline of overall revenue by 6% YoY. MPR also experienced a contraction of its net adex revenue of 7%. This was despite a noted ramp-up in 1QFY15 total adex of RM3.3 bil (+4% YoY) leading to the GST implementation, as reported by Nielsen.

- The TV segment contributed significantly lower 1QFY15 revenue of RM136.4mil (-8% YoY) and earnings of RM10mil (-56% YoY). This may be explained by the increased adex market share by PayTV during the quarter of 42% (+8ppt YoY) as compared to FTA TV (-2% YoY). However, advertising for FTA TV will still be sustained as it will continue to be used by advertisers to reach the mass markets.

- The print segment also registered lower revenue and earnings of RM2.5mil (41% YoY), due to lower circulation revenue (by 11% YoY) while radio posted lower earnings of RM4.5mil (37% YoY) due to lower adex. The outlook for its print segment is expected to remain challenging given the current market condition and a shift in media consumption preferences towards digital media.

- On a positive note, MPR’s content creation segment posted higher profits of RM1.7mil (+36% YoY) on the back of increased revenue. This is in line with MPR’s long-term aspiration to become a content creation company which develops and sells content across all platforms.

- Going forward, we expect the outlook for MPR to remain muted given the weak consumer sentiment post-GST implementation and market uncertainties.

- MPR will continue to develop its non-adex business, while consolidating its market share in core advertising revenue. MPR continues to manage its costs through further optimisation of its manpower size and increase productivity through training.

- Despite the challenging year ahead, MPR should continue to be supported by its good dividend yields >6%, given its strong cash position. The stock trades at FY15F PE of 12x, between its 5-year historical PE band of 6x and 16x. MCIL and Star currently trades at 9x and 12x respectively.

Source: AmeSecurities Research - 15 May 2015