Results

• Media Prima’s 1HFY15 core earnings was flattish yoy. Its core earnings of RM62.8m (5.66 sen/share) came slightly below our expectations, accounting for 42% of both ours and consensus’ full year estimation.

Deviations

• Lower than expected revenue, only made up 44% and 46% of HLIB and streets’ forecasts.

Dividends

• Declared dividend of 3.00 sen/share, equal to last year’s dividend (2QFY14). This represents payout ratio of 32%. Exdate on 09-Sept-15, payment date on 30-Sept-2015. Management also stated that its dividend payout ratio of 60% - 80% is intact.

Highlights

• 1HFY15 review. Total revenue declined 6% yoy from RM742.7m to RM695.2m. This was due to the shift in media landscape to online hereby traditional media platforms were negatively affected. All segments save the content creation reported lower turnover yoy. (TV: -5% yoy; Radio: -15% yoy; Outdoor: -0.5% yoy; Print: -8% yoy; and New Media: -35% yoy). Despite the 6% drop in revenue, MPR managed to contain its costs with PATAMI recording a marginal decline.

• For its content creation segment, MPR enjoyed 10% increase yoy largely contributed by higher sales of content to its international customers. The group plans to increase its content selling locally and internationally in an effort to mitigate lower sales from its traditional media platforms.

• Media Prima’s expenses declined 8% yoy thanks to its effective cost management coupled with its cost savings from MSS that occurred in 4QFY14.

• 2QFY15 review. The group also charted higher core PATAMI; +133% qoq (first quarter was traditionally the group’s weakest quarter) and +23% yoy (attributed to cost savings from MSS). EBITDA margin improved to 24% vs. 18% in 1QFY15 and 20% in 2QFY14.

• Outlook for Adex is still challenging as consumer and business confidence are affected by GST implementation. Any of its USD or foreign currency exposure will be mitigated by lower newsprint prices as well as MPR’s cost cutting measures such as switching from 45gsm to 42 gsm newsprint which will provide MPR with an additional 5% cost savings per annum. The group’s merit would be its high dividend yield of 8.4% - 9.3%.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD

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

Valuation

• Maintain HOLD, with lower TP of RM1.21 based on 8.9x FY16 EPS (1SD below 4-year average P/E multiple). Even though potential total return is 15%, we still maintain Hold as we feel the stock currently lacks any rerating catalysts, coupled with the impact of GST which will cause a slowdown in adex growth.

Source: Hong Leong Investment Bank Research - 14 Aug 2015