News/ Comments

• Media Prima announced that its wholly-owned subsidiary, Synchrosound Studio Sdn Bhd has entered into a share purchase agreement (SPA) to acquire 100% of the issued and paid-up share capital of Copyright Laureate Sdn Bhd (CSLB), for a total cash consideration of RM20m.

• The group has a net cash position of RM54.5m as at 30th June 2015. Hence, funding of acquisition would not be an issue for Media Prima.

• Date of completion would be based on the conditions stated in SPA.

• Incorporated on 16th September 2009, CLSB is currently operating two Malay-oriented radio broadcasting stations, known as Ultra FM and Pi Mai FM. Ultra FM for Klang Valley whereas Pi Mai FM is for Penang.

• With the newly acquired radio stations, it brings Media Prima’s number of radio stations to five (from three; Hot FM, Fly FM and One FM).

• Ultra FM and Pi Mai FM are currently in a loss-making position. It is estimated that both radio stations would need at least 2 years before it can contribute positively to the group.

• We are neutral with a slight positive bias on the acquisition as it bodes well with the group’s strategy to expand by acquiring new media assets (would be able to leverage on their expertise in managing radio stations). However, due to CSLB loss-making position (charted approximately RM1.5m losses). It will we be a short-term minimal drag for Media Prima’s earnings, of about 1%-2%.

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 unchanged TP of RM1.21 based on 8.9x FY16 EPS (1SD below 4-year average P/E multiple).

Source: Hong Leong Investment Bank Research - 2 Oct 2015