- We upgrade Media Prima (MPR) to a BUY rating (from HOLD previously) with a lower fair value of RM1.50/share (vs. RM1.70/share previously), based on our DCF valuation.

- Management declared a first interim single-tier dividend of 3.0sen/share (1HFY14: 3.0sen).

- MPR reiterated its commitment to its dividend policy of a 60%-80% payout ratio of PATAMI. Our more conservative FY15 DPS estimate of 10sen/share (12.1sen previously) translates into a dividend yield of 9%. Note that MPR’s current cash pile stands strongly at RM361mil.

- 1HFY15 earnings came in unchanged at RM62.8mil, which is in line with our and consensus estimates at 42%. This was despite a decline in 1HFY15 revenue to RM695.2mil (-6.4% YoY). This was largely due to a drop in MPR’s 1HFY15 adex revenue by 5%-10% attributed to a slowdown in Total Adex after GST. In contrast, Nielsen reported only a slight drop of total adex in 1HFY15 by 1% YoY. However, it is likely that the drop in total adex revenue is actually higher due to heavy discounting in the Pay TV segment.

- Due to poorer adex, almost all MPR’s segments’ revenues were lower, with the exception of the Content Creation (“Others”) which doubled its non-adex profits due to higher sales of its content to international customers. This is in line with MPR’s plans to be an international quality content provider and reduce its dependency on adex revenue.

- We expect the final two quarters to be challenging, due to lower consumer sentiment from the GST and uncertainties in the domestic environment. Hence, we have lowered our adex assumption in our forecasts by 5%-10%.

- However, we are positive that MPR’s bottom line will be sustained due to strict cost savings taken, notably the company-wide Mutual Separation Scheme completed in FY14. In addition, management has been actively conducting process improvement measures across the board such as changing to 42GSM newsprint paper, which provides better printing yields by approximately 5%.

- The poorer MYR/USD exchange rate should have minimal impact on MPR as it buys all its newsprint in local currency from Malaysian Newsprint Industries (MNI). Furthermore, MPR’s foreign content is only ~25%, and it is not bound by any contract which gives its flexibility to manage its foreign content purchases.

- Note that the Digital Terrestrial TV agreement with MyTV is still under negotiations until a more commercially viable pricing can be agreed.

- We noted foreign shareholding remained stable at ~30%.

- The stock is trading at an undemanding FY15F PE of 8.5x, which is between its 5-year historical PE band of 6x and 16x. MCIL and Star is currently trading at 8x and 15x, respectively.

Source: AmeSecurities Research - 14 Aug 2015