Highlights

• As of 31st March 2015 (its 1QFY15), Media Prima’s earnings stand at RM19.4m. This accounts for 11% of our full year estimation. Since the beginning of the year, adex has been rather sluggish. We believe there’s no significant improvement in adex from 1Q going into 2Q. Thus, we expect 2QFY15 earnings to be relatively weak, but still higher than 1Q which has always been the weakest quarter for the group.

• In an attempt to lessen dependency on its two main segment, TV and print, Media Prima will focus on developing a more universal content and monetising it. Plans to entice the local market as well as overseas market.

• Also, based on the Jul – Dec 2014 circulation numbers released by Audit Bureau of Circulation, NST, Harian Metro and Berita Harian circulation has dropped 18%, 23% and 13% yoy, respectively. With the change in media landscape, we expect further erosion in its print circulation.

• Looking at its share price performance, the stock has underperformed the market. YTD, it has depreciated 13.7%, a letdown for Media Prima compared to FBMKLCI, which has dipped 3.9%.

• It remains to be seen if consumer and business sentiment could pick up in June or July onwards for Ramadhan and Raya Festivities. If yes, we believe it is a sign that adex shall normalised in 2H of 2015. Also note that 4Q has always shown a stronger adex numbers as adex spending is skewered towards the end of the year.

• For now, we feel Media Prima lacks any rerating catalyst. The only merit is its decent dividend yield of 6.6% - 7.3%.

Risks

• Weak Adex growth;
• High content and newsprint cost;
• Threat of new players;
• Depreciation of RM vs. US$; and
• Regulatory risk.

Forecasts

• Earnings are cut by 10% - 14% due to uncertain market outlook, cautious adex spending coupled with the impact of GST which will cause a slowdown in adex growth and erode sentiment further.

Rating

HOLD

• Although we like MPR for its integrated media business and its monopoly position in Free-To-Air Segment, we expect a sluggish adex growth considering the impact of GST on consumer spending.

Valuation

Reiterate HOLD, with TP lowered to RM1.50 based on the updated 4-year average P/E multiple of 11x FY16 EPS.

Source: Hong Leong Investment Bank Research - 3 Jul 2015