AmResearch

MRCB - On track to deliver restructuring promises

kiasutrader
Publish date: Fri, 20 Nov 2015, 02:17 PM

· We maintain our BUY on Media Prima (MPR) with a higher fair value of RM1.65 /share (vs. RM1.50/share previously), based on our DCF valuation as we inch up our earnings and adjust our WACC assumptions (from 9.4% to 8.4%).

· Management declared a second interim dividend of 2.0sen, bringing 9MFY15 total dividend to 5.0sen (9MFY14 :6.0sen). The dividend is generally in line with our conservative FY15 dps estimate of 10sen (FY14: 11sen), a payout ratio of 72%.

· 3QFY15 core earnings came in at a decent RM44.2mil, bringing 9MFY15 earnings to RM107mil, which was in line with our and consensus estimates at 73% respectively.

· YoY, 3QFY15 earnings came in higher by 5.9%, improving across all its segments. Improvement to earnings was a result of MPR’s strict cost-efficiency initiatives undertaken and also lower direct costs resulting from the VSS in Q4FY14. This was despite a softer adex environment and consumer sentiment, which saw MPR’s YTD revenue decline by 5%.

· Television in particular, which contributes more than 50% of total profits, has seen its 3QFY15 PAT advance by 14% YoY.

· QoQ, 3QFY15 earnings improved by 6.6% as the festive season during the quarter favored all segments, apart from Print.

· Print declined by 30% QoQ, hit harder by the segment’s 7% decline in revenues due to lower adex and circulation revenues. However, its YTD earnings improved by 16% YoY due to better printing yields and cheaper newsprint costs.

· The decline of the MYR/USD exchange rate is expected to have neutral impact on MPR. MPR has a favorable arrangement to source its newsprint locally from MNI, at the rate of ~RM1,750/ MT, which is attractive as compared to current market prices of RM550USD/MT. Content-wise, MPR will work within its allocated budget to obtain its foreign content. It is not locked into any service contract denominated in USD.

· While the Adex outlook continues to be subdued, we should see higher revenue in Q4 due to festivities and companies maxing out their remaining adex budgets.

· Given MPR’s dividend policy of 60-80% payout ratio, we believe that our dps estimate of 10sen/ share is possible. This translates into an attractive dividend yield of 7.5%.

· The stock is trading at an undemanding FY15F PE of 10x, trading below the average of its 5-year historical PE band of 11x. MCIL and Star is currently trading at 8x and 13.5x, respectively.

Source: AmeSecurities Research - 20 Nov 2015

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